Equillibrium

Equilibrium is the point at which the supply curve and the demand curve intersect, all resources are being efficiently used.

Excess demand: occurs when the quantity demanded is greater than the quantity supplied resulting in,

Shortages: where consumers cannot get the quantities of items that they desire.

Price ceiling: creates a shortage, occurs when the government puts a legal limit on how high the price of a product can be.  In order for a price ceiling to be effective, it must be set below equilibrium

Excess supply: occurs when the quantity supplied is greater than he quantity demanded resulting in

Surplus: where producers have inventories they cannot get rid of.

Price floor: is the lowest legal price a commodity can be sold at. A price floor creates a surplus.  Price floors are used by the government to prevent prices from being too low.

Peak: highest point of real GDP

·             Greatest amount of spending 

·             Lowest amount of unemployment 

·             Inflation becomes a problem

Expansion (recovery phase): Real GDP is increasing due to an increase in spending and decrease of unemployment.

Contraction (recession): Real GDP declines for 6 months due to a reduction in spending and increase of unemployment.

Trough: Lowest point of real GDP

·             Least amount of spending.

·             Highest unemployment.