Scribd
Upload
264 views

Econ Chapter 6 Section 1

1. The document discusses supply and demand equilibrium, including definitions of key terms like surplus, shortage, equilibrium price and quantity. 2. It explains how equilibrium price changes in response to shifts in supply or demand - if demand increases, price rises, and if supply increases, price falls. 3. The document also covers price controls, defining price ceilings and floors, and notes that without price controls, exchange in a market is maximized.

Uploaded by

Abi Calderale
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
264 views

Econ Chapter 6 Section 1

1. The document discusses supply and demand equilibrium, including definitions of key terms like surplus, shortage, equilibrium price and quantity. 2. It explains how equilibrium price changes in response to shifts in supply or demand - if demand increases, price rises, and if supply increases, price falls. 3. The document also covers price controls, defining price ceilings and floors, and notes that without price controls, exchange in a market is maximized.

Uploaded by

Abi Calderale
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Econ Chapter 6 Section 1:

Price: Supply and Demand Together( watch


vid)
Section 1: Supply and Demand Together
Moving to Equilibrium

1. What is a surplus? (p. 144)


The condition in which the quantity supplied of a good is greater than the quantity demanded.

2. What is a shortage? (pp. 145–145)


The condition in which the quantity demanded of a good is greater than the quantity supplied.
Shortages occur only at prices below the equilibrium price.

3. When is a market in equilibrium? (p. 145)


In a market, the point at which the quantity of a good that buyers are willing and able to buy is
equal to the quantity that sellers are willing and able to produce and offer for sale.

4. What is an equilibrium quantity? (p. 145)


The quantity of a good that is bought and sold in a market that is in equilibrium.

5. What is a good's equilibrium price? (p. 145)


The price at which a good is bought and sold in a market that is in equilibrium.

Why Does Price Fall When a Surplus Occurs?


6. What are inventories? (p. 145)
The stock of goods that a business or store has on hand.

7. Why does price fall when a surplus occurs? (p. 145)


With a surplus, suppliers will not be able to sell all they had hoped to sell, so their inventories
grow beyond the normal level. Storing extra goods can be costly and inefficient; thus, sellers
want to reduce their inventories.

Why Does Price Rise When There Is a Shortage?


8. What makes a price rise when a shortage exists? (p. 145)
With a shortage, buyers will not be able to buy all they had hoped to buy. Some buyers will offer
to pay a higher price to get sellers to sell to them, rather than other buyers, the higher prices will
motivate suppliers to start producing more output. Thus, in a shortage, the tendency is for price
and output to rise until equilibrium is achieved.

What Causes Equilibrium Prices to Change?


9. What would cause an equilibrium price to change? (p. 146)
For the equilibrium price to change, either supply or demand has to change.

Demand Changes Cause Changes to Equilibrium Price


10. How does the equilibrium price change when demand for a good increases or
decreases? (pp. 148–149)
Because the quantity demanded is greater than the quantity supplied, a shortage will exist in a
certain company. Then the price begins to rise. As it does, the company will eventually move to
point 2, where it is in equilibrium again. An increase in the demand for a good will increase the
price, all other things remaining the same.

Now suppose that the demand for x product of that company decreases. The demand curve
shifts to the left. Because quantity supplied is greater than quantity demanded, a surplus exists.
Now the price begins to fall. As it does, the company moves to point 2, where it is in equilibrium
again. A decrease in demand for a good will decrease the price, all other things remain the
same.

Supply Changes Cause Changes to Equilibrium Price


11. How does the equilibrium price change when supply for a good increases or decreases?
(pp. 149–150)
An increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity
demanded will increase. A decrease in supply will cause the equilibrium price to rise; quantity
demanded will decrease.

Changes in Supply and in Demand at the Same Time


12. What happens to the equilibrium price if demand increases more than supply? (p. 150)
It will cause the equilibrium price to rise.

13. If supply increases more than demand? (p. 150)


Will lower the equilibrium price.

Does It Matter if Price Is at Its Equilibrium Level?


14. If all markets are in equilibrium, what does that mean for shortage and surplus? (p. 150)
This is where the quantity demanded and quantity supplied are equal. The market is
clear. Surplus and shortage: If the market price is above the equilibrium price, the
quantity supplied is greater than the quantity demanded, creating a surplus.

Price Is a Signal
15. How does price provide information and act as a signal? (pp. 150–151)
Prices act as a signal that tells producers and consumers how to adjust. Prices tell
buyers and sellers whether goods are in short supply or readily available. The price
system is flexible and free, and it allows for a wide diversity of goods and services.

What Are Price Controls?


16. What is a price ceiling? (p. 151)
A legislated price set below the equilibrium price, above which buyers and sellers cannot legally
buy and sell a good.

17. What is a price floor? (p. 151)


A legislated price, set above the equilibrium price, below which buyers and sellers cannot legally
buy and sell a good.

Price Controls and the Amount of Exchange


18. How are people better off without price controls? (p. 154)
Because price controls bring about less exchange than would occur without them.

You might also like