Macro Economics Chapter 04 Power Point

Question 2

What will I learn in Chapter 4?

Answer 2

•How changes in supply and demand influence the equilibrium price and quantity of goods and services exchanged

Question 3

What else will I learn in Chapter 4?

Answer 3

•You will study situations in which the market mechanism fails

Question 4

What causes a change in market equilibrium?

Answer 4

•A change in demand•A change in supply

Question 5

What can cause a shift in a demand curve? A change in:

Answer 5

•Number of buyers in the market•Tastes and preferences•Income•Expectations of consumers•Prices of related goods

Question 6

An increase in Demand causes:

Answer 6

Increase in Equilibrium Price then Increase in Quantity Supplied

Question 7

A decrease in Demand causes:

Answer 7

Decrease in Equilibrium Price then Decrease in Quantity Supplied

Question 8

What can cause a shift in a supply curve? A change in:

Answer 8

•Technology•Number of sellers in the market•Resource prices•Taxes and subsidies•Expectations of producers

Question 9

An increase in Supply causes:

Answer 9

Decrease in Equilibrium Price then Increase in Quantity Demanded

Question 10

A decrease in Supply causes:

Answer 10

Increase in Equilibrium Price then Decrease in Quantity Demanded

Question 11

Can the laws of demand and supply be repealed?

Answer 11

•In some markets, the objective of politicians is to prevent prices from reaching the equilibrium price

Question 12

What are the two types of price controls?

Answer 12

1.Price ceilings2.Price floors

Question 13

What is a price ceiling?

Answer 13

•A legally established maximum price a seller can charge

Question 14

What is the purpose of price ceilings on rent?

Answer 14

•So needy people will pay lower rent than the equilibrium rent

Question 15

What is the result of price ceilings on rent?

Answer 15

•A shortage of rental units

Question 16

A Rent Ceiling will cause:

Answer 16

Quantity Demanded exceeds the quantity supplied then an Shortage.

Question 17

Why may rent controls be counter productive?

Answer 17

•Shortages•Illegal markets•Less maintenance•Discrimination

Question 18

What are other examples of price ceilings?

Answer 18

•Wage and price controls•Usury laws

Question 19

What is a price floor?

Answer 19

•A legally established minimum price a seller can be paid

Question 20

What are examples of price floors?

Answer 20

•Minimum wage law•Agricultural price supports

Question 21

What is the result of a price floor on wages paid to labor?

Answer 21

•A surplus of labor

Question 22

Why do we have price ceilings and floors?

Answer 22

•Because of failures in the free market

Question 23

What is market failure?

Answer 23

•A situation in which the price system creates a problem for society or fails to achieve society’s goals

Question 24

Who was Adam Smith?

Answer 24

•The father of modern economics who wrote The Wealth of Nations, published in 1776

Question 25

What did Adam Smith say about competition?

Answer 25

•There must be competition for markets to function properly

Question 26

What happens when competition is lacking?

Answer 26

•Market failure results

Question 27

What is an example of another market failure?

Answer 27

•Externalities

Question 28

What is an externality?

Answer 28

•A cost or benefit imposed on people other than the consumers and producers of a good or service

Question 29

What is a negative externality?

Answer 29

•An externality that is detrimental to third parties

Question 30

What is an example of a negative externality?

Answer 30

•Pollution

Question 31

External costs cause:

Answer 31

Inefficient equilibrium

Question 32

What is the conclusion of chapter 4?

Answer 32

•When the supply curve fails to include external costs, the equilibrium price is artificially low, and the equilibrium quantity is artificially high

Question 33

What is a positive externality?

Answer 33

•An externality that is beneficial to third parties

Question 34

What is an example of a positive externality?

Answer 34

•Vaccinations

Question 35

What is the conclusion of positive externality?

Answer 35

•When externalities are present, market failure gives incorrect price and quantity signals, and resources are misallocated

Question 36

What is the effect of external costs and benefits on resources?

Answer 36

•External costs cause the market to over allocate resources, and external benefits cause the market to under allocate resources

Question 37

What is a public good?

Answer 37

•A good that, once produced, has two properties:1.users collectively consume benefits2.no one can be excluded

Question 38

What are examples of public goods?

Answer 38

•National defense•Public education•Roads

Question 39

What is the conclusion of public goods?

Answer 39

•If public goods are available only in the marketplace, people wait for someone else to pay, and the result is an underproduction or zero production of public goods

Question 40

What is another example of market failure?

Answer 40

•Income inequality