Applications of Demand and Supply - Chapter 4

Vocabulary practice cards focusing on corporate ownership, market price controls, and the impacts of health insurance and third-party payers.

Sole proprietorship

A firm owned by one individual.

Partnership

A firm owned by several individuals.

Corporation

A firm owned by shareholders who own stock in the firm, producing approximately $90\%$ of the nation’s total output.

Shares of corporate stock

Shares in the ownership of a corporation.

Stock market

The set of institutions in which shares of stock are bought and sold, such as the New York Stock Exchange (NYSE).

Expectations of future profits

The most important factor determining the demand and supply for shares of a company's stock.

Price Controls

Laws that government enacts to regulate prices, including price ceilings and price floors.

Price ceiling

A regulation that keeps a price from rising above a certain level, such as Rent Control.

Price floor

A regulation that keeps a price from falling below a certain level, such as Minimum Wage.

Shortage

A market condition occurring under a price ceiling where the quantity demanded (e.g., $19,000$) exceeds the quantity supplied (e.g., $15,000$).

Agricultural Price Supports

A type of price floor in high-income areas like the United States, Europe, and Japan that costs roughly $\$1\,\text{billion}$ per day.

Health insurance

An agreement where people pay a fixed amount to an insurer who in turn pays for most of the health-care expenses incurred.

Third-party payer

An agent other than the seller or the buyer that pays part of the price of a good or service, leading to increased total spending.

U.S. Health-care Output (1960)

The share of total U.S. output devoted to health care, which was about $5\%$.

U.S. Health-care Output (2004)

The share of total U.S. output devoted to health care, which rose to $15.4\%$.

Equilibrium price (Intel Corporation)

The initial price of $\$25$ determined by the intersection of demand (D1) and supply (S1) where Q1 million shares are traded.