| A | B |
|---|
| A market refers to a group of buyers and sellers for a given | good or service |
| The price is the amount of money needed to buy | a particular good or service. |
| Changes in demand or supply alter the price as well as | the quantity bought and sold at that price. |
| Prices provide incentives to both | buyers and sellers. |
| Prices are Adam Smith's | "invisible hand" |
| Prices are | Adam Smith's "invisible hand" that brings the actions of self-interested individuals in harmony with the general prosperity of a society. |
| Flexible prices bring the interests of consumers | and producers together. |
| A price ceiling is a legally established | maximum price |
| Governments enact price ceilings when they fear that | the price might be higher than they desire it to be. |
| Quantity Demanded | The amount of a good or service people will buy at a given price in a given period of time. |
| Quantity Supplied | The amount of a good or service sellers are willing and able to offer at a given price in a given period of time. |
| One unintended consequence of a price ceiling | is that although the price ceiling is meant to make the good more affordable and benefit consumers, it instead creates a situation in which some of those who demand the good won't be able to buy it at all. |
| A second implication is that price ceilings open up incentives for an | illegal market, which refers to sales which happen at an illegal price. |
| A price floor is a | legally established minimum price. |
| Quantity supplied in the market (which is encouraged by the higher price) exceeds quantity demanded (which is discouraged by the higher price). | Economists call this outcome a surplus. |
| Some roles of government include | protecting the environment, helping the poor and providing national defense. |
| The paradox of good government is that it must be strong enough | to perform its appropriate roles, but weak enough that it does not intervene excessively in people's lives. |
| Although there is a role for government, | we cannot assume that it will perform that role well. |
| Role of Government | this activity involves preserving and fostering competition, regulating natural monopolies, providing information and services to enable the market to work better, regulating externalities, providing certain public goods, offering some economic security and income redistribution to individuals, assuring a sound monetary system and promoting overall economic stability and growth. |
| Shortage | The situation that results when the quantity demanded for a product exceeds the quantity supplied. Generally happens because the price of the product is below the market equilibrium price. |
