Chapter 1: What Is Economics s2

ECONOMICS GUIDED READING CHAPTER 6: “PRICES”

Section 1 “Combining Supply and Demand ” Pg. 125-132

1. What two groups do prices link in the market? A. B. 2. The point at which supply & demand are equal is called 3. describes any price or quantity not at When quantity supplied is not equal to quantity demanded in a market. 4. is when quantity demanded is greater than quantity supplied. 5. As long as there is excess demand and quantity exceeds quantity , suppliers will keep their price. 6. When the has enough to close the gap between supply & demand, suppliers will have found the highest price that the market will bear. 7. Eventually a new will occur. 8. is when quantity supplied is more than quantity demanded. 9. Whenever the market is in and prices are , market forces will push the market toward equilibrium. 10. Markets tend toward equilibrium, but in some cases the steps in to control . 11. The government can impose a : A. B. 12. Describe a price ceiling:

Does it usually create a surplus or a shortage? ______13. Give an example of a price ceiling.

14. Describe a price floor:

15. Does a price floor create a shortage or a surplus? 16. Give an example of a price floor 17. Draw a demand curve (A) Draw a supply curve (B) Draw a curve showing both supply & demand on the same curve (C).

1 (A) (B) (C)

Section 2 “Changes in Market Equilibrium” pg. 133-137

1. Economists say that a market will move equilibrium which means that & will gradually move _____ equilibrium. 2. List the 3 factors that will shift a supply curve to the left or to the right: A. _____ B. _____ C. _____ 3. A shift in the supply curve to the left or right create a new ______4. If equilibrium moves gradually downward to the right quantities demanded are and the prices are ______. 5. When the supply curve shifts to the left the equilibrium point will shift and market prices will be & the quantity sold will be ______6. Excess demand will lead to a . 7. Excess demand also appears in the form of search costs. Describe this:

8. Give an example of search costs:

9. When demand increases (rises), both the equilibrium price & quantity will______. 10. When demand decreases ( falls), the demand curve shifts to the . suppliers respond by prices on their inventory.

11. Draw a supply & demand curve and show: A. the equilibrium point ( circle it) B. where a shortage would occur ( shade the area red ) C. where a surplus would occur ( shade the area blue )

2 Section 3 “The Role of Prices” pg. 139-144

1. In a free market, are a tool for distributing goods & resources. are nearly always the most efficient way to allocate & distribute resources. 2. Name 4 advantages that prices have as a method of allocating resources. A. B. C.

D. 3. One of the big benefits of a market-based economy is the of goods and services. 4. How does the price system provide for freedom of choice:

5. What are three disadvantages of allocating resources through rationing: A. B. C. 6. When people conduct business with regard for government controls on price or quantity they are said to do business on the . 7. What motivates suppliers to increase production in the face of high demand and high prices? 8. What three problems in the free market work against the efficient allocation of resources? A. B. C.

9. (A) Draw a curve demonstrating an increase in demand. Label it D1 and D2 (B) Draw a curve demonstrating a decrease in demand. Label it D2 and D3 ( Supply remains constant )

(A) (B)

3 10. (A) Draw a curve demonstrating an increase in supply. Label it S1 and S2 (B) Draw a curve demonstrating an decrease in supply. Label it S2 and S3 (Demand remains constant)

(A) (B)

Prices These four principles explain how supply and demand can affect the price of goods and services.

1. If demand increases and supply remains constant, the price increases. 2. If demand decreases and supply remains constant, the price decreases. 3. If supply increases and demand remains constant, the price decreases. 4. If supply decreases and demand remains constant, the price increases.