Chapter 6 Study Guide: Market Equilibrium and Price Controls

Vocabulary flashcards covering key concepts from Chapter 6, including equilibrium, shortages, surpluses, price ceilings, price floors, rationing, and market mechanisms.

Equilibrium

The condition where the market clears, quantity demanded equals quantity supplied, and neither a shortage nor surplus exists; there is $1$ point of equilibrium.

Disequilibrium

Any point that is not equilibrium, causing the market to push back toward equilibrium.

Shortage (Excess Demand)

A condition in the market where quantity demanded is greater than quantity supplied, occurring when the price is lower than the equilibrium price.

Surplus

A condition in the market where quantity supplied is greater than quantity demanded, occurring when the price of a good is higher than the equilibrium price.

Command System

An economic system in which economic questions are answered by the government.

Free Market Economy

An economic system where the market regulates itself and goods and resources are distributed by prices, providing advantages such as diversity of choices and fewer shortages.

Price Ceiling

A maximum price that can be legally charged for a good or service (e.g., rent control); if set below the equilibrium price, it can cause excess demand.

Price Floor

A minimum price set by the government for a good or service (e.g., minimum wage); if set above the equilibrium price, it can cause a surplus (such as of labor).

Rationing

A system of allocating scarce goods and services using criteria other than price, used when there is a shortage of a particular good.

Supply Shock

A sudden shortage of a good, which can be resolved by raising prices.

Price as a Signal and Incentive

A mechanism that guides consumer and producer behavior: for consumers, high price results in low consumption and low price results in high consumption; for producers, high price results in high production and low price results in low production.

Axes on a Supply/Demand Graph

The graphical framework where price is plotted on the $y$-axis and quantity is plotted on the $x$-axis.

Price (Shift Role)

A variable that is NOT a supply or demand shifter; instead, prices shift back toward equilibrium following shifts in supply or demand.