Chapter+6+HW

Chapter 6.1 Notes Key Terms Equilibrium: the point at which quantity demanded and quantity supplied are equal Disequilibrium: describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity supplied is not equal to quantity demanded in a market Excess Demand: when quantity demanded is more than quantity supplied Excess Supply: when quantity supplied is more than quantity demanded Price Ceiling: a maximum price that can be legally charged for a good or service Price Floor: a minimum price for a good or service Rent Control: a price ceiling placed on rent Minimum Wage: a minimum price that an employer can pay a worker for an hour of labor

Balancing the Market - demand schedule shows how much consumers are willing to buy at various prices - supply schedule shows how much sellers are willing to sell at various prices

Defining Equilibrium - the point of balance between price and quantity - at the equilibrium the market for a good is stable - look for the price at which the quantity supplied equals the quantity demanded

Graphing Equilibrium - illustrate equilibrium with a supply and demand graph - the equilibrium price and quantity can be found where quantity supplied equals quantity demanded; or the point where the supply curve crosses the demand curve crosses the demand curve

Disequilibrium - when the market price is anywhere but at the equilibrium - when quantity supplied is not equal to quantity demanded in a market - disequilibrium can create excess demand or excess supply

Excess Demand - when quantity demanded is more than the quantity supplied - when the actual price in a market is below the equilibrium price you have excess demand because low price encourages buyers and discourages sellers - when the price rises cutomers will buy less because it becomes more expensive

Excess Supply - occurs when the price is too high - when the quantity supplied exceeds quantity demanded - higher price encourages sellers to produce more because they think they will make higher profits when they actuall lose money because a higher price discourages consumers to buy the products - when the market is in disequilibrium and the prices are flexible market forces push the market towards the equilibrium

Government Intervention - markets tend toward the equilibrium but in some cases the governement steps in to control prices - government can impose a price ceiling, or a maximum price that can be leqally charged for a good - government can create a price floor, or a minimum price for a good or service Price Ceilings - a maximum price, set by law, that sellers can charge for a good or service - government places price ceilings on some goods that are considered "essential" - rent control created to control the maximum price allowed to be payed for rent The Cost of Price Ceilings - when price can't rise to the equilibrium the market must determine which households get an apartment and which don't (example) - governments pass rent control to help renters with their greatest need Price Floors - minimum price set by the government

The Minimum Wage - price floor - the set minimum price that an employer can pay a worker for an hour of labor - states can set their own minimum wages - if the minimum wage is set above the market equilibrium wage rate the result is a decrease in employment house Chapter 6.1 Assessment 1. What is unique about an equilibrium price? - it's the price when the quantity demanded and the quantity supplied are both equal 2. What situation can lead to excess demand? - when prices drop consumers want to buy more if the product but less is being made 3. How is a price floor different from price ceiling? - price floor is the minimum price that the government sets for a producer to sell their goods and services at or to pay their workers - price ceiling is the maximum price that a government sets for a producer to price their products at 4. How does rent control work? - rent control is set by the government to control the amount a household has to pay for their monthly rent 5. Turn to the graph of median weekly earning on pg 536 in the Databank. Suppose that the federal government has raised the minimum wage to $600 per week. (a) Which category of jobs would be least affected by the change? - service (b) Which two categories would be most affected by the new minimum wage? - management and professional (c) What are the likely consequences for workers in these two fields? - losing their job, house..etc 6. What are the benefits and drawbacks of a price ceiling? - the benefits of a price ceiling are that the government sets them on things that they would consider a necessity. for example if a toothpaste company wanted to price their toothpaste very high the government wouldn't let them because it's something that everybody needs - the drawback of price ceiling is when you're the producer you'd want to make the most profit out of the product that you are selling but you can't because the government doesn't allow it