Ch6 Flashcards
Price
The monetary value of a product as established by supply and demand
- high price: producers to produce more and buyers buy less
- low price: producers to produce less and buyers buy more
4 ways prices regulate economy
Prices are neutral
Flexible
No cost of administration
Familiar and easy to understand
Rationing
System under which an agency decides everyone’s fair share
Ration coupon
Ticket that entitles holder to obtain a certain amount of a product
Problems with rationing
People feel their share is too little
High cost for printing tickets and paying distributors
Same amount of ticket despite amount of work someone does
Economic model
Combination of supply and demand schedules and curves
Market equilibrium
Situation in which prices are stable and quantity of goods supplied is equal to quantity demanded
Surplus
Quantity supplied is greater than quantity demanded at a given price
Result- price comes down
Shortage
The quantity demanded is greater than the quantity supplied at a given price
Result- price will go up
Equilibrium price
Price where quantity supplied equals quantity demanded
- if price too high surplus will force it down
- if price too low shortage will force it up
Competitive price theory
Represents a set of ideal conditions and outcomes
- two similar things should be same price but if one is priced higher it thought as better
Price ceilings
Maximum legal price that can be charged for a product
-price ceilings set too low create a shortage
Price floors
Lowest legal price that can be paid for a good
Ex: minimum wage
Price floor set too high creates a surplus
Agricultural price supports
Effort to stabilize the volatility of the farming industry
Target price
Price floor for farm products
Loan supports
Help farmers afford to plant maintain and harvest crops
Nonrecourse loan
Loan that carries no penalty or obligation to repay if not it is not paid back
-helps farmers reach target price for their crops and likely a surplus of agricultural crops
