Download Chapter 6 Part 2

Chapter 6, Section 2
When
the supply or the
demand curve shifts, a new
equilibrium occurs.
Then, the market price and
quantity sold move toward the
new equilibrium.
Excess
demand leads firms to raise
prices
Higher prices lead to more quantity
supplied
The quantity demanded falls until
the two values (price and quantity
demanded) are equal
Excess
supply will force firms
to cut prices.
Falling prices will cause
quantity demanded to rise
and quantity supplied to fall
until they are equal.
Factors
that shift the supply
curve to the left or right
include:
• Advances in technology
• New government taxes / subsidies
• Changes in price of raw material /
labor
Equilibrium
occurs at the
intersection of the demand curve
and supply curve.
Therefore,
• A shift in the demand curve or the
supply curve will change the
equilibrium price.
• A functioning market will carefully
balance supply and demand.
In
a free market, prices are a tool for
distributing goods and resources
throughout the economy.
Price
is a language both sellers and
buyers understand. It is a way of
putting a standard measure of value
on a good or service.
Prices
give the consumers
and producers incentives.
• When prices are low, the consumer
has the incentive to buy more.
• When prices are high, the
producer has the incentive to
produce more.
Prices
are very flexible and can
easily be changed to solve the
problem of excess demand or
excess supply.
• Prices can be raised to solve the
problem of excess demand.
• Prices can be lowered to solve the
problem of excess supply.
 Supply
shock is a sudden shortage of a
good. Suppliers can no longer meet the
needs of consumers.
 Solution
1: Increase supply -- the
problem is it might take some time.
 Solution 2: Rationing – Dividing up
goods or services and distributing them
using criteria other than price. This
might also take time.
One
benefit of a market- based
economy is the diversity of
goods and services consumers
can buy.
Price
allows the consumers to
choose among similar goods.
The
Black Market is a market in
which goods and services are sold
illegally.
• Usually a consequence of rationing.
• Consumers pay more so they can buy a good
when rationing makes it otherwise
unavailable.
• The Black Market can also allow consumers
to buy goods cheaper because there are no
government taxes on these goods.
A
free market allows
resources to be utilized
efficiently.
Land, labor and capital will
be used for their most
valuable purposes.
 Imperfect
Competition: Only a few firms
providing a good or service
 Spillover Costs (Externalities): Costs of
production
• Air pollution
• Water pollution
 Imperfect
Information: Consumers and/or
producers do not have enough information to
make informed choices about a product
• Buying a car