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18 Cards in this Set
- Front
- Back
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Price |
The sum of money you have to pay for a good or service. It is determined by the interaction of supply and demand |
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Efficiency |
The best production and distribution of goods and services |
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What are the three functions of price? |
1. Signalling 2. Transmission of preferences 3. Rationing |
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Signalling |
Excess of demand will signal to producers to RAISE their price. Changing price signals to producers whether to INCREASE or DECREASE output |
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How might a producer know they have an excess of demand? |
Social media Waiting lists |
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Transmission of preferences |
Producers send information to suppliers about their changing needs and resource owners are incentivised to supply more. |
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Rationing |
Prices help to ration scarce resources. If resources are scarce > price rise Only those willing to pay the new price are allocated to them |
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Equilibrium |
Balance e.g the balance between quantity demanded and quantity supplied |
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Key economic consumption |
Markets will always move towards equilibrium |
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Disequilibrium |
Unbalanced e.g excess supply and excess demand When there is a shortage or surplus of goods |
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Role of markets |
In the determination of price In the allocation of resources |
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Determination of price |
- prices in many stores are set by the sellers - if price is too high, not many will buy > excess in supply - have to decide whether to decrease the price or let it say the same |
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Allocation of resources |
- Through the market resources are allocated - scarce resources are rationed - incentives are given to producers to increase supply -excess demand/ supply signals to consumers/producers to change production or consumption levels |
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Allocation of resources Definition |
How scarce resources are distributed among producers and how scarce goods and services are allocated among consumers |
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Determination of price Definition |
Interaction of the free market forces of demand and supply to establish the general level of price for a good or service |
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Role of markets |
In the determination of price In the allocation of resources |
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Fall in supply will result in: |
1. excess demand - disequilibrium 2. Increase in price 3. Decrease in quantity 4. Shift to the left D = S |
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Increase in supply |
1. Shift to the right |
