Price Determination Flashcards
How do you calculate revenue?
price * Quantity
What happens when supply is greater than demand?
Downward pressure on price - disequilibrium.
What happens when there is excess demand?
Upward pressure on price - disequilibrium.
What is a outward shift of market demand called? (Latin)
Ceteris Parabus.
What does ceteris parabus lead to?
Rise in equilibrium price and expansion of market demand.
What is consumer surplus?
Total difference between the total amount consumers are willing and able to pay for a good/service.
What are the four main functions of the price mechanism?
Allocate
Rationing
Signalling
Incentives
What is the allocate function?
Allocating scarce resources among competing uses.
What is the rationing function?
Prices serve to ration scarce resources when market demand outstrips supply.
What is the signalling function?
Prices adjust to demonstrate where resources are required, and where they are not.
What is the incentive function?
Quantity supplied increases, mainly when prices also increase.
What is the price mechanism?
Communication network between buyers and sellers.
What do consumers do if prices go up?
Luxuries.
