Chapter 6

Remind me… What is the market? In the market, demand and supply interact Buyers + Sellers  market equilibrium In market equilibrium there is… equilibrium price Let’s visit Karen’s sandwich shop on pg. 164

Surplus Q S > Q D Shortage Q D > Q S

Remember those factors that make demand and supply shift all around? Yea… About those… Disequilibrium – an imbalance between quantity demanded and quantity supplied The process of finding equilibrium starts over again

Competitive pricing – producers sell at prices that balance making highest profit and taking customers away from competitors Characteristics of the Price System It’s neutral It’s market driven It’s flexible It’s efficient I’m flexible!

Price ceiling – an established max price that sellers can charge Set below the E price; shortage happens Ex: football tickets & price ceilings

Price floors – established minimum price buyers must pay Ex: minimum wage as a price floor Minimum wage – minimum price an employers must pay for 1 hour of work

Rationing – system where gov’t distributes goods & services using factors other than price During national emergencies like wartime Black market – where G & S are illegally bought & sold Violates price controls & rationing

Price of labor is wages – payments workers receive in return for their work Equilibrium wage – where # of workers needed = # of workers available Different jobs have different wage rates – the rates of pay for specific jobs or work performed Wage rate are determined by supply & demand; influence by four factors: Human capital Working conditions Discrimination in the workplace Glass ceiling Government actions Minimum wage