EPA 3 Equilibrium, Prices & Costs

price cealing

a maximum price that can be legally charged for a good or service

disequilibrium

any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market

rationing

a system of allocating goods and services using criteria other than price

shortage

a situation in which consumers want more of a good or service than producers are willing to make available at a particular price

predatory pricing

selling a product below cost to drive competitors out of the market

price floor

a minimum price for a good or service

search costs

the financial and opportunity costs consumers pay when searching for a good or service

supply shock

a sudden shortage of a good

black market

a market in which goods are sold illegally, without regard for government controls on price or quantity

which categories of cost would increase for a business if it extended it hours?

variable and total costs

what is the basic goal of a firm when it sets it level of output?

to maximize profits

what does rent control do to the supply of apartments?

leads to shortage

what two conditions lead to disequilibrium?

shortage and surplus

how can equilibrium be restored after a shortage?

adjust the price or increase production

what 3 roles to prices play in the free market system?

tool for distributing goods and services, move land, labor, and capital into the hands of producers, it is a language, an incentive, and a signal of economic conditions

what are negative externalizes?

a cost or benefit that is caused by one party but financially received by another

what are the 5 price system benefits?

information, incentives, choice, efficiency, and flexibility

consumer surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

producer surplus

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

surplus

when the quantity supplied of a good is greater than the quantity demanded

price rationing

the allocation of goods among consumers using prices

what demographic does price rationing target?

the rich

non price rationing

a system in which the government or other institution decides how to distribute a product

where is a price ceiling located in relation to equilibrium?

falls below equilibrium

where is a price floor located in relation to equilibrium?

above equilibrium