price mechanism key terms Flashcards
define Equilibrium price
where supply and demand are balanced
define signalling
when the price of a product rises it signals to producers that the demand is probably high and firms should increase production of it.
define rationing
when demand high and supply low price will increase so only those who can afford will buy
define incentive
when the price of a product rises there’s an incentive to shift production towards those products.
define excess demand
where demand is greater than supply
define excess supply
where supply is greater than demand
define market clearing price
the price where a good will be at equal supply and demand
free market forces
the pressures which force the market towards an equilibrium point.
there are many forces such as
government legislation,
trade unions,
multinational monopolies which negate the power of the market
