Econ Chapter 6 Guided Reading

Chapter 6

Sec 1 & 2 Quiz

Define the following words from Chapter 6 Section 1

Equilibrium:

Disequilibrium:

Excess Demand:

Excess Supply:

Price Ceiling:

Price Floor:

Rent Control:

Minimum Wage:

Answer the following questions from Chapter 6 Section 1

  1. Explain a situation that can lead to excess demand.
  1. Explain a situation that can lead to excess supply.
  1. Draw a supply and demand curve and show excess demand.
  1. Draw a supply and demand curve and show excess supply.
  1. Explain how a price floor is different from a price ceiling.
  2. On what type of goods do governments usually place price ceilings?
  1. Explain what rent control is and why it sometimes is used.

The following is a supply and demand schedule for hotdogs.

Price of a hotdogQuantity demandedQuantity supplied

.$50400200

$1.00350250

$1.50300300

$2.00250350

$2.50200400

$3.00150450

7. Plot and graph the demand and supply curve for hotdogs.

8. What is the equilibrium price (market clearing price) for hot dogs? (1 point)

9. If the price of a hotdog was$1.00, would there be excess supply or excess demand? Explain why.

10. If the price of a hotdog was$3.00, would there be excess supply or excess demand? Explain why.

Define the following terms from Chapter 6 Section 2

Surplus:

Shortage:

Search Costs:

Answer the following questions from Chapter 6 Section 2

  1. Excess Demand is the same as ______
  2. Excess Supply is the same as ______
  3. List the factors that would cause the demand curve to shift.
  1. List the factors that would cause the supply curve to shift.
  1. If the local grocery store had a sale on ketchup, what would probably happen to the demand for hotdogs? What way would the demand curve shift? Why would this happen? Would the equilibrium price increase or decrease?
  1. The Michigan Government has decided to tax hotdog suppliers (per hotdog) due to the obesity problem that our state faces. What would happen to the supply of hotdogs? What way would the supply curve shift? Would the equilibrium price increase or decrease?

Answer the following questions with the letter of the graph that illustrates each situation. You may use a graph more than once.

  1. An unusual winter freeze in Brazil kills a majority of the world’s coffee crop.
  2. New machinery allows coffee beans to be roasted more efficiently.
  3. The price of tea, a sub of coffee, decreases.
  4. Biggby launches a successful advertising campaign “B Happy” causing people to want more coffee.
  1. A panel of doctors announces that coffee may cure many diseases.
  2. The price of cream, a complement to coffee, decreases.
  3. The economy takes a dive and income drops to record lows.
  4. Biggby opens another 100 stores.

Define the following terms for Chapter 6 Section 3

Supply Shock:

Rationing:

Black Market:

Spillover Costs:

Answer the following questions from Chapter 6 Section 3

  1. What overall, vital role do prices play in the free market?
  2. What standard do pries set?
  3. What signal do high prices send to producers?
  4. What signal do high prices send to consumers?
  5. Why do suppliers use price rather than production to resolve the problem of excess?
  6. How does a price-driven economy allow for a wide diversity of goods?
  7. What was the goal of the Soviet planned economy?
  8. How did the Soviet economic system affect consumer goods?
  9. How does the free market ensure an efficient allocation of resources?
  10. What motivated suppliers to increase production in the face of high demand and high prices?
  11. What three problems in the free market work against the efficient allocation if resources?
  12. Who wrote the Wealth of Nations?
  13. What vital point did he make in his book?