Chapter 5: Market Equilibrium and Policy

Question 1

equilibrium price

Answer 1

the price at which the quantity supplied equals the quantity demanded

Question 2

equilibrium quantity

Answer 2

the quantity traded when quantity supplied equals its quantity demanded

Question 3

shortage

Answer 3

quantity demanded is greater than the quantity supplied at current market price (excess demand)

Question 4

surplus

Answer 4

quantity supplied is greater than the quantity demanded at current market price (excess supply

Question 5

nonprice determinant (demand)

Answer 5

characteristic of demand other than its own price

Question 6

change (shift) in demand

Answer 6

a change in quantity demanded at every price

Question 7

nonprice determinant (supply)

Answer 7

characteristic of supply other than its own price

Question 8

change (shift) in supply

Answer 8

a change in quantity supplied at every price

Question 9

price ceiling

Answer 9

a maximum legal price at which a good, service, resource can be sold

Question 10

nonbinding price ceiling

Answer 10

maximum legal price set above the existing equilibrium price

Question 11

binding price ceiling

Answer 11

maximum legal price set below the existing equilibrium price

Question 12

price floor

Answer 12

a minimum legal price at which a good, service, resource can be sold

Question 13

nonbinding price floor

Answer 13

minimum legal price set below the existing equilibrium price

Question 14

binding price floor

Answer 14

minimum legal price set above the existing equilibrium price

Question 15

minimum wage

Answer 15

the lowest wage firms can legally pay employees in the labor market

Question 16

excise tax

Answer 16

tax based on the number of units purchased, not on price paid