6 Flashcards
Price
the monetary value of a product
Prices serve as…..
Signals
High prices signal….
High prices signal to buyers to buy less and producers to produce more.
Low prices signal….
Low prices signal buyers to buy more and producers to produce less.
Prices help producers and consumers answer the three basic questions of
Prices help producers and consumers answer the three basic questions of economics of what, how, and for whom to produce
The price system is an efficient _______ of economic resources because prices are… (best way to allocate resources)
Allocator
Neutral
equally fair to both producer and consumer
Flexible
they can adapt to changing economic conditions
Familiar
everyone understands how they work
Efficient
because the market determines prices largely on its own
Rationing
a system of allocating goods and services without prices in which the government decides everyone’s fair share
When was rationing used
World War Two
Problem with rationing;
- Perceived fairness
- Administrative expense - someone has to pay for the printing and distribution costs for coupons and salaries of workers
- Distorted incentives
- Abuse and misuse - coupons are stolen, sold, and counterfeited (black market)
In a market economy, buyers and sellers have the exact opposite goals:
- buyers want to find good deals at low prices
* Sellers hope for high prices and large profits
How do we know if a price is fair to both?
• when the process is both competitive and the transaction is voluntary
