The four basic laws of supply and demand are: 1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price. 2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price. 4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price 5. What role do prices serve in a market economy? Price has the most central roles in a market economy. It is the determinant demand, supply, and inflation. 6. What’s wrong with price ceilings to keep prices low? And minimum wages to keep incomes higher? The primary criticism leveled against price controls is that by keeping prices artificially low, demand is increased to the point where supply cannot keep up, leading to shortages in the price-controlled product. Those who oppose an increase to the minimum wage, however, argue that the effects on employment rates would be exactly the opposite of those supporters foresee. A higher minimum wage, they claim, would be too heavy a burden on employers, especially small business owners. And those employers, in turn, would be unable to hire as many people -- an undesirable result when unemployment continues to hover at about 8 percent.
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- Fall '10
- Supply And Demand, producer, lower equilibrium price, higher equilibrium price