Markets and Prices
An arrangement that enables buyers and sellers to exchange goods and services, even if there is no physical location.
What is a "market"?
When price rises, this happens to the quantity demanded.
What is "it decreases"?
The division of income into wages, rent, interest, and profit is called this.
What is the functional distribution of income?
Markets work best when there are these three things.
What is strong competition, reliable information, and mobile resources?
A market economy cannot function without protection of these and enforcement of contracts.
What are property rights?
The ratio of one price compared to another.
What are relative prices?
The term for the price at which the amount supplied equals the amount demanded.
What is the “market-clearing price”?
Wheat and corn are given as examples of this type of market with many producers and no single seller able to control price.
What is a highly competitive market?
Cigarette smoking harming non-smokers or pollution from a factory are examples of what kind of market failure.
What is a negative externality?
Goods and services provided by government are paid for through these mandatory payments.
What are taxes?
Information, incentive, or rationing.
What are the functions of pricing?
This is the market price where the quantity of a product that consumers want to buy (demand) equals the quantity that producers are willing to sell (supply).
What is the equilibrium price?
When producers coordinate decisions to restrict competition by fixing prices or limiting output.
What is collusion?
Workers unable to move to expanding industries because of lack of skills or money is an example of this problem.
What is resource immobility?
A tax that takes a larger percentage of income from higher earners than from lower earners.
What is a progressive tax?
When the price of soybeans rises compared to corn, farmers are encouraged to change their planting decisions in this way.
What is a reallocation due to incentives? (They plant more soybeans)
If supply increases while demand stays the same, this happens to the market-clearing price.
What is "it falls"?
This modern organization of oil-producing nations is an example of a cartel that restricts competition.
A dam built to generate electricity also providing flood control is an example of this.
What is a positive externality
One activity of government is to preserve and foster competition through these types of laws.
What are antitrust laws?
In the circular flow model, households provide these to firms.
What is land, labor, and capital?
When coffee prices rise, this happens to the demand for tea.
What is "it rises because it is a substitute"?
Government payments such as Social Security or unemployment compensation, where no current productive work is done.
What are transfer payments?
This is a product or service producers cannot withhold from consumers who refuse to pay
What is a "pure" public good?
This is an example of a regressive tax.
What is a sales tax or an excise tax?