Principles List #2 Econ 1( I did principle 6 for you) 1. Verbally and Graphically describe the consequence of the government passing a law fixing the price of a product below the market equilibrium price If the Government fixes the price of an item below the market equilibrium price, then there will be and excess demand for the item Supply Curve Note 1. at Pe the distance to the demand curve = distance to the supply, so quantity demanded - quantity supplied PB Demand 2. at PB. the distance to the supply curve is less than curve I the distance to the demand curve which means quantity supplied is less than quantity demanded, or excess demand exists 2. Verbally and Graphically describe the consequence of the government passing a law fixing the price of a product above the market equilibrium price If the Government fixes the price of an item below the market equilibrium price, then there will be an excess supply for the item Note 1. at Pe the distance to the demand curve = Supply distance to the supply, so quantity demanded = quantity curve supplied PA 2. at PA the distance to the supply curve is greater than Pe the distance to the demand curve which means quantity supplied is greater than quantity demanded, or excess Demand supply exists curve 3. Verbally and graphically describe the ONE economic condition that has to exist for firms in an economy to sell a part of the product they produce to buyers in foreign economies (Exporting) The one condition that has to exist, if firms in an economy choose to sell part of what they produce to foreign buyers is the world price has to be greater than the equilibrium price if export =0 Note: the Difference between the world price and the Supply world curve equilibrium price without exports is the incentive for firms to sell part of what the produce to foreign buyers (i,e. Export) The distance between the Fe Demand Curve and Supply curve at the world price is Demand the quantity of the item that will be exported Curve