ECON Unit 2 equilibrium

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7 Terms

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Equilibrium

When quantity demanded equals quantity supplied

If things aren’t equilibrium, then either shortage or surplus

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Surplus

Excess supply

When quantity supply > quantity demand at current price

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Shortage

Excess demand

When quantity demand > quantity supply at current price

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Price control

Legal restrictions on how high or low a marktet price can go

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Price ceilings (price control)

Maximum price sellers are allowed to charge on a produce

Set below equilibrium because it prevents prices from rising

Artificially created shortage

Ex. Rent control (shortage of housing)

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Price floors (price control)

Minimum price buyers are allowed to pay for a product

Set above equilibrium because it prevents price from falling

Creates artificial surplus

Ex. Minimum wage (surplus of workers)

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Rationing

When government controls distribution of a product to prevent scarcity