market failure - a flaw in a price system that occurs when some costs have not been accounted for and therefore are not properly distributed
externality - an effect that an economic activity has on people and businesses that are neither producers nor consumers of the good or service being produced; it may be either positive or negative
public good - any good or service that is consumed by all members of a group, regardless of who has helped pay for it
market equilibrium - the point at which the quantity supplied and quantity demanded for a product are equal at the same price
surplus - a situation in which the quantity supplied of an item at a given price exceeds the quantity demanded
shortage - a situation in which the quantity demanded of a good or resource exceeds the quantity supplied
price ceiling - a government regulation that sets a maximum price for a particular good
price floor - a government regulation that sets a minimum price for a particular good
minimum wage - the lowest hourly wage rate that an employer legally can pay a worker, as established by federal law
rationing - a system by which a government or other institution decides how to distribute a good or service
black market - buying and selling of goods in violation of the law, typically at a higher price that has been officially established

benefits of the price system
limits of the price system
-public goods
consequences of rationing
-creates black markets
ways the government sets prices
-price ceilings
-price floors

Connection to everyday life:


Incentives- High prices gives the consumer an incentive to buy less items. But when prices are low, it gives the consumer the incentive to buy more products.

Choice- When the incentive to buy products is higher, then the amount of choices a consumer has, will be higher.
Efficiency- Can provide a wide use of resources and with more resources companies can produce more items at a lower price.

Flexibility- One of a companie's greatest strengths is to deal with change in prices.

A price floor often creates a surplus.
A price ceiling often creates a shortage.

http://www.spartacus.schoolnet.co.uk/2WWblackmarket.htm -has details of the black market created from rationing in World War 2.