Chapter 6 Flashcards
The monetary value of a product
Prices
Signal buyers to buy less and producers to produce more
High prices
Signal buyers to buy more and produce less
Low prices
The price system is an efficient allocator of economic resources because prices are
Neutral- they are equally fair for 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
A system of allocating goods and services without prices in which the government decides everyone’s fair share
Rationing
Problems with rationing
1 perceived fairness
2 administrative expense: someone had to pay for the printing and distribution cost of coupons salaries of workers
3 distorted incentives:
4 abuse and misuse: coupons are stolen, sold , and counter feinted (black market)
Want to find good deals at low prices
Buyers
Hope for high prices and larger prices
Sellers
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 Quality Service Competition Demand Taxes Uniqueness
When prices are to high you have a
Surplus
Situation where the quantity supplied is greater than quantity demanded at a given price
Surplus
Where prices are to low you have a
Shortage
A situation where quantity supplied is less than quantity supplied demanded at a given price
Shortage
Is it a good idea to raise a minimum wage pro?
Increases the buying power of the poorest workers
It motivates workers to work harder
It raises the standard living for the poorest worker
It helps decrease spending on social welfare programs
