Economics review

what are the four advantages to prices?

• neutrality

• flexibilty

• familarity

• efficiency

equilibrium point of supply and demand curve

• where the supply & demand curves meet

• quantity that sellers want to sell is exactly equal to the quantity that buyers want to buy

what are the TWO types of disequilibrium?

• surplus

• shortage

what is surplus?

when the price is too high, sellers supply more than buyers want, so products are left over how

how can surplus be fixed?

By sellers lowering the prices to encourage more buying and reduce excess inventory.

What is shortage?

price is too low, buyers want more than sellers are offering, so there isn’t enough of the product

how to correct shortage?

sellers raise price. this reduces demand & encourages mores supply, until the market reaches equilibrium again.

what are positives of price ceilings?

• set maximum legal prices for goods/services

  • makes them affordable for consumers

what are the negatives of price ceilings?

• can create shortages because demand increase while supply decreases

  • landlords may neglect properties causing housing to be harder to find

what the positives of price floors

-establish a minimum legal price which helps producers maintain a stable income

what are the negatives of price floors

• can create surpluses since producers apply more than consumers demand

  • raise prices for consumers (increase costs for businesses)

why do price controls remain in effect?

• allow government to achieve economic goals such as equity & security

• receive political support from groups that benefit from them

• policies are difficult to remove since there may not be enough opposition even if they create economic inefficiences

gold prices rise

investors may be worried about an economic or social crisis and are buying gold for financial security

stock prices fall

Signals that investors anticipate an economic downturn or recession, expect declining business profits, and lack confidence in future economic growth.

oil prices rise

Signals high energy demand driven by economic growth or potential supply disruptions, which can increase production and transportation costs and lead to inflation.

black market

when goods or services are bought sold illegally or outside government regulations

when a consumer is able and willing to buy a good or service, he or she creates which of the following?

demand

what determines the price and the quantity produced of most goods?

the interaction of supply and demand

how is future price related to current demand?

if the price is expected to rise, current demand will rise

what kind of system is the United States economy based on?

market

law of demand

• as price decreases, quantity demanded increased

• as price increased, quantity demanded decreases

example of law of demand

A coffee shop has a sale where a $5 coffee is now $3 so more people buy it, but when the price returns to $5, not as many people buy

marginal utility

extra usefulness or additional satisfaction a person gets from acquiring one more unit of a product

Example of marginal utility

Drinking a first glass of water when thirsty provides high satisfaction, while drinking a second glass yields less additional satisfaction, illustrating the added value gained from consuming one more unit.

diminishing marginal utility

extra satisfaction we get from using additional quantities of the products brings to decline

example diminishing marginal utility

Drinking glasses of water when thirsty: the first glass provides the highest level of satisfaction, while each subsequent glass delivers progressively less additional satisfaction.

income effect

amount of a change a quantity demanded due to a consumers income when a product’s price is increased/decreased

example of income effect

if you Receive an annual $10,000 raise at work, your disposable income increases. This can make you feel wealthier and spend more money on leisure