Chapter 6 Assessment

Chapter Summary

A summary of major ideas in Chapter 6 appears below. See also the Guide to the Essentials of Economics, which provides additional review and test practice of key concepts in Chapter 6.

• Section 1 Combining Supply and Demand (pp. 125–131)

  In an uncontrolled market, the price and quantity sold of a good will move to an equilibrium point where the quantity supplied equals the quantity demanded. The government can set a maximum price in a market with a price ceiling, or a minimum price with a price floor. Although some consumers or producers benefit, these moves distort the market and lead to excess demand or excess supply.

• Section 2 Changes in Market Equilibrium (pp. 133–137)

  A market moves to a new equilibrium when there is a shift in either supply or demand. In the short term, a shortage will occur if quantity demanded exceeds quantity supplied, or a surplus will occur if quantity supplied exceeds quantity demanded. Market price and quantity sold adjust, and buyers and sellers change their behavior over time.

• Section 3 The Role of Prices (pp. 139–144)

  In a free market, prices provide a common language that enables land, labor, and capital to flow into the hands of those who value them most. Prices tell consumers and suppliers which goods are in short supply and which are plentiful. Individual decisions lead to an efficient market with a wide choice of goods. The alternative to a price-based market, rationing, is inefficient and difficult to carry out successfully.

Key Terms

Match the following definitions with the terms listed below. You will not use all the terms.

• price ceiling
• excess supply
• supply shock
• equilibrium
• shortage
• price floor
• search costs
• rationing

1. The point at which quantity demanded and quantity supplied are equal
2. The financial and opportunity costs consumers pay in searching for a good or service
3. A system of allocating scarce goods and services by criteria other than price
4. A sudden drop in the supply of a good
5. Any situation in which quantity supplied exceeds quantity demanded
6. Any situation in which quantity demanded exceeds quantity supplied
7. A government-mandated minimum price that must be paid for a good or service

Using Graphic Organizers

8. On a separate sheet of paper, copy the tree map below. Then complete it with examples of how government actions can affect prices. Include whether prices are in equilibrium or disequilibrium before and after the government's actions.

   

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