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ECONOMICS
Price - Ch 6
1. What is unique about an equilibrium price?
It is unique because it is the point where the price and amount supplied are equal to the price and amount
demanded.
2. What situation can lead to excess demand?
It occurs when the quantity demanded is more than the quantity supplied. This can occur when the actual
price in the market is lower than the equilibrium price.
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3. What is price floor?
It is a government set minimum price for a certain goods or services such as minimum wage.
4. What is price ceiling?
It is a government set maximum price that can be charged for a good or service such as rent.
5. How does rent control work?
It is a price ceiling place on rent that is often motivated by a desire to help the poor households by cutting
their housing costs.
6. What conditions lead to a surplus?
They are caused by shifts in the supply curve, which cause the quantity supplied to exceed quantity
demanded. Surpluses can also occur if consumers demand far less of a good than they previously did.
7. How does the supply shock affect equilibrium price and quantity?
It will cause the market to move into a brief equilibrium and will usually cause an increase in the price of the
good, thus decreasing the quantity demanded.
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8. How is rationing different from a price-based market system?
It distributes scarce goods and services according to criteria other than price, so it is the exact opposite of a
price based economy.
Price - Ch 6
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9. What is disequilibrium?
When the quantity demanded is not equal to the quantity supplied in a market.
10. Describe what demand and supply curves look like.
Demand curve decreases from left to right while supply curves increases from left to right.
11. How does marginal product of labor change as more people are hired?
The marginal product of labor increases up to a certain point; once a certain point is reached, however, total
output still increases, but at a decreasing rate.
12. What categories of costs combine to create a firm’s total cost?
Fixed costs and variable costs combine to create total cost. Fixed costs, or overhead, are costs that are the
same no matter how much is produced. Variable costs rise or fall depending on the quantity produced.
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13. Name and describe three factors that can cause a change in supply?
1) Changes in input costs
2) Future expectations
3) Technological changes
4) Government subsidies, taxes. and regulations
14. What circumstances cause a firm to experience diminishing marginal returns?
When output declines with each additional unit of labor. They generally result when the supply of capital
does not increase with the work force such as when there are not enough machines for the added workers to
use.
15. How does the global economy affect the supply of a good in the United States?
Global economic events such as increases in wages, technological innovation, or trade restrictions will affect
supply of goods to the United States.
Week 6 of 10.
The 5th quiz towards your midterm.
Price - Ch 6
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