chapter 6 Flashcards
Price
the monetary value of a product
Prices serve as _____, high prices signal to buyers or consumers to buy _____ and producers to produce ____. Low prices signal buyers. to buy ____ and producers to produce _____
Prices serve as signals, high prices signal to buyers or consumers to buy less and producers to produce more. Low prices signal buyersb. to buy more and producers to produce less
Prices help producers and consumers answer the 3 basic questions of _____
WHAT, HOW , AND FOR WHOM to produce
Neutral:
Familiar:
Flexible:
Efficient:
Neutral: they are equally fair for both producer and consumer
Familiar: everyone understands how they work
Flexible: they can adapt to changing economic conditions
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`
Problems with rationing: (4)
Perceived fairness - looks fair at first glance
Administrative expense - Someone has to pay for the printing and distribution costs of coupons + salaries of workers
Distorted incentives - read
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
What are the main factors that affect prices?
Product cost Product quality Service Competition Taxes Uniqueness Demand
when prices are too high you have a
surplus
Surplus
the quantity supplied is greater than quantity demanded at a given price
When the prices are too low you have a…
Shortage:
Shortage
a situation where quantity supplied is less than quantity demanded at a given price
Pros of raising minimum wage:
It increases the buying power of the poorest workers - pro raise
It raises the standard of living for the poorest workers - pro raise
It motivates the workers to work harder - pro raise
It helps decrease spending on social welfare programs - pro raise
Cons of raising the minimum wage.
Causes fewer workers to be hired which increases unemployment - con of raising
It hurts small businesses. - con of raising
It discourages poor workers from getting job skills and better employment opportunities - con of raising
It forces businesses to raise their prices - con of raising
