Ch.5+Prices

__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
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**Topics:** __benefits of the price system__ -information -incentives -choice -efficiency -flexibility __limits of the price system__ -externalities -public goods -instability __consequences of rationing__ -unfair -expensive -creates black markets __ways the government sets prices__ -price ceilings -price floors

[] [] [] [|www.sjsu.edu/faculty/watkins/surplus.htm]
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__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.

[] -has details of the black market created from rationing in World War 2.
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