Chapter 6: Demand and Supply Flashcards
price at which quantity demanded and quantity supplied are equal
equilibrium price
at a certain price, quantity demanded and quantity supplied are equal
market equilibrium
prices tend to fall, producers cut back in production
surplus
prices rise, producers increase quantity supplied
shortage
imbalance between quantity demanded and quantity supplied
disequilibrium
sell products at lower prices than others
- lures customers away from rival producers
- maintains overall profits by selling more units
- lower price or risk losing customers
competitive pricing
no advantage being producer or consumer; sets the equilibrium price
neutral
market is determining prices; not government or central planners
market driven
surpluses, shortages lead producers to change prices
flexible
prices adjust until maximum number of products sold
efficient
what are the 4 characteristics of competitive pricing?
- neutral
- market driven
- flexible
- efficient
legal maximum price a seller may charge for a product
- set below the equilibrium price, so shortage results
- government interbreed to keep prices from going too high
price ceiling
legal minimum that buyers must pay for a product
- protect agricultural products, encourages farmers to produce abundant supply of food
price floor
least amount employer may pay for one hour of work
above equilibrium: employers hire fewer workers
below equilibrium: no effect
minimum wage
way of allocating products using factors other than price
rationing
