3.Price and price system in a market economy. Market equilibrium
How do prices perform motivation function? Motivation / incentive function. Price increases and decreases send messages suppliers and potential suppliers of goods and services.
How do prices perform signalling function? One of the thing that prices do is carry information to buyers and sellers.
How do prices ration scarce resources? Prices serve to ration scarce resources when demand in a market outstrips supply.
How does the price system distribute society's output among the people? Those who sell goods at prices consumers are not willing to pay will suffer financial losses.
How does the price system provide answer to the How question? Firms that are efficient will produce more goods with fewer raw materials than firms that are inefficient. The quest for greater efficiency motivates producers in to succeed competitive activity. While these efforts are in the best interests of the sellers, all of consumers may benefit because they are provided with the things they want at lower costs.
How does the price system provide answer to the Who question? Consumers who are willing and able to pay the equilibrium price (or more) buy a desired product, while those who are unwilling or unable to pay this price have to do without this product.
How is an economic equilibrium represented graphically? where demand and supply are in equilibrium, that is where are curves intersect
In what way does the price system provide answer to the question of what to produce? Acting in accordance with the profit motive, business firms produce what the consumers desire. Produces can earn more revenues by responding to the consumer demand than by ignoring it. Those who sell goods at prices consumers are not willing to pay will suffer financial losses.
What are the main functions of prices? There are three key functions of prices as rationing, signalling, and motivating incentive.
What does a decrease in demand lead to? A decrease in demand leads to a decrease in both the equilibrium price and equilibrium quantity
What does an increase in supply result in? An increase in produces a higher equilibrium quantity but supply a lower equilibrium price.
What is a price system? It`s an economic system in which is resources are allocated as a result of the interaction of the forces of supply and demand.
What is a price? Price is the money value of goods and services price. The amount, usually of money when something is bought or sold.
What is a shortage and when does it develop? Shortage: the amount of a product that could be sold at a price lower than the market price.
What is an equilibrium price? It`s the price at which the quantity of goods or y services offered by suppliers is u exactly equal to the quantity that ist demanded by purchasers in a particular time period.
What is excess supply? Excess supply (surplus): the amount of a product available at a price higher than the market price.
What is the correlation between prices and production? Prices provide the answer to the question of what to produce: Produces can earn more revenues by responding to the consumer demand than by ignoring it.
What is the difference between scarcity and shortage? At prices above the equilibrium price, the quantity supplied exceeds the quantity demanded, so a surplus or excess supply develops. A shortage or excess demand occurs at prices below the equilibrium price, when the quantity demanded is greater than the quantity supplied
What is the prod main incentive? The producer's main incentive is the producer's desire for profit leads them to introduce new production methods to lower production cost
Why are prices the key ingredients in a market economy? Prices are the key ingredients in a market economy because they make things happen
Why cannot producers ignore consumer demand? If consumers wont to buy something the producer will produce it
Why do producers do heir best to reduce production costs? Because they wont to have more profit for them
Why does the law of demand put limits on supplies while consumers are limited by the law of supply? Because each producer can sell all he wants produce and each consumers can buy all he demands
Why does the price system determine each person's income? Because under the prices system each person's income is determined in the market place. Some people are endowed with talent, skill, intelligent, education or special training and each more, on the average, than who are not.
Why is it important to find equilibrium prices in markets? Because is one at which each producer can sell he wants to produce, and each consumer can buy all he demand