Assessment chapter 6.1
Key terms:
1
What is unique about an equilibrium price?
The equilibrium price 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?
Excess demand occurs when the quantity demanded is more than the quantity supplied. This can
occur when the actual price in a market is lower than the equilibrium.
3
How is a price floor different from a price ceiling?
A price floor is a government set minimum price for certain goods or services (such as minimum
wage). A price ceiling is a government set maximum price that can be charged for a good or
service (as in rent control).
4
How does rent control work?
Rent control is a price ceiling placed on rent that is often motivated by a desire to help poor
households by cutting their housing costs.
5
Turn to the graph of median weekly earnings on page 536. Suppose that the federal government
has raised the minimum wage to $500 per week.
a) Which category of jobs would be least affected by the change?
Managerial and professional
b) Which two categories would be most affected by the new minimum wage?
Farming
c) What are the likely consequences for workers in these two fields?
Wages will probably increase; some workers may lose their jobs as companies cut back to save
money.
6
What are the benefits and drawbacks of price ceilings?
Price ceilings benefit lower income people by keeping prices from rising beyond their means.
Drawbacks include possible shortages, such as waiting list for apartments.
7
The graph below shows supply and demand curves in the notebook market. Use what you have
learned in the section to identify the following elements of the graph: price floor, supply curve,
equilibrium point, disequilibrium point, demand curve, price ceiling. See page 131
Price floor (E; supply curve (C); equilibrium point (a); disequilibrium point (b); demand curve
(F), price ceiling (D)
Chapter 6.2 assessment
1. what conditions lead to a surplus?
Surpluses are caused by shifts in the supply curve, which cause quantity supplied to exceed
quantity demanded.
2. what is an example of a search cost?
An example of a search cost is the time and gas money spent looking for a hard to find item.
3. Explain how the equilibrium price and quantity sold of eggs will change in the following cases.
Remember that they need not move in the same direction.
S2 S1
a. An outbreak of food poisoning is traced to eggs.
Quantity sold decreases; equilibrium price increases.
b. Scientists breed a new chicken that lays twice as many eggs each week
S1
S2
Quantity sold may increase; equilibrium price decreases
c. A popular talk show host convinces her viewer to eat an egg a day.
S1 S2
Quantity sold will increase; equilibrium price will increase
4. What will happen to suppliers in a market if there is a surplus of the good they sell, but no
supplier can afford to lower prices? Hint: inelastic v elastic market
Supplier will need to know the product's elasticity of demand. If demand is inelastic, the
producer will be able to sell the product at the price that they have been asking and will need to
adjust production to make sure that they do not produce more until the surplus is gone.
If demand is elastic, they may be stuck with the surplus unless some other market factor
increases sales – finding a new market for products (export)..
5. The graph at the right shows the effects of a demand shift on a particular market.
a. Has demand increased or decreased? Explain.
Demand has increased. The curve has shifted to the right.
b. What are the original equilibrium price and quantity sold?
Original equilibrium price is $20; original quantity sold is 150,
c. What are the new equilibrium price and quantity sold?
New equilibrium price is $25; new quantity sold is 180.
d.
A new tax raises the cost of production. How does the supply curve react?
1.
The supply curve will shift to the left.
e.
Give a market price and quantity sold that might be a new equilibrium point after this cost
increase.
Equilibrium price could go up to $27; supply 175
Price
S2
S1
$25
$20
New Demand
150
Original Demand
180
Section 3 Assessment
1
How does a supply shock affect equilibrium price and quantity?
Supply shock will cause the market to move into a brief disequilibrium and will usually cause an
increase in the price of the good thus decreasing the quantity demanded.
2
How is rationing different from a price based market system?
Rationing distributes scarce goods and services according to criteria other than price, so it is the
exact opposite of a price based economy (market economy).
3
List three reasons why a price base system works more efficiently than central planning?
Price based system
Central planning
1) allows for flexibility in the marketplace between
consumer and supplier
1) Command economy answers the three economic question
2) allows for a larger selection of goods and services
2) Command economy is very inefficient at delivering goods
and services to the marketplace despite their lower prices.
3)
3)
4
service.
Give two examples of situations in which prices gave you an incentive to purchase or not purchase a food or
1) 2% Milk at Walgreens went up in price from $1.99 to $2.39. Milk at Festival Food - Praire Farm is $2.02
2) Eating at El Rancherito v Los Rancheros
5. In your group, have each student bid for items from the following basket of goods and services: 10 pairs of movie
tickets; 20 fine restaurant dinners, 40 bagels, 5 pair of running shoes, and 30 hours of dog walking. - $50 play money
a)
What prices were bid for these goods?
b)
Why do you think some goods received higher bids than others?
c)
What do you think would happen to the bids if the number of items for sale doubled?