2.4 PRICE - GCSE ECONOMICS (copy)

Price is..

Price is the sum of money you have to pay for a good or service. It determined by the interaction of supply and demand

Characteristics of a market

* contains buyers and sellers
* It is where the price is set

equilibrium price and quantity

This is where the quantity supplied exactly matches the quantity demanded

Equilibrium price

This is the price at which demand is equal to supply. At this price all products will be sold.

Equilibrium quantity

This is where the quantity bought and sold out at which quantity demanded is equal to quantity supplied.

**Scenario one: Lets assume that we are informed that consumer real income has increased.**

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How would this look a diagram? Draw it!

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**Analyse the effect of an increase in consumer income?**

The increase in incomes has resulted in a right shift of the demand curve from D to D1 because consumers have more money to spend. This had led to a rise in price from p to p1 and an increase in the quantity demanded from Q to Q1. We now have established a new equilibrium point at P1 and Q1. The increase in income has meant that consumers can buy more goods and services, but have to pay slightly higher prices. The producer will benefit as they are going to gain more sales revenue, due to sales revenue at p1 and q1. This should increasing and maximising their profit and lead to them being able to invest into the business

**Scenario 2- The government wants to encourage people to do more**

**exercise. The government are subsidising the membership of gyms+ health club.**

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How would the diagram look?

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**Analyse the interaction between demand & supply and the effect of a government subsidy?**

The subsidy has result in a shift to the right of supply curve from s to s1. This has led to a fall in price from p to p1 and an increase in the quantity supplied from Q to Q1. We now have a new market equilibrium at P1 to Q1. Health clubs can afford to supply more because they are being supported with money from the government. Consumers are able to buy more memberships with their money, since the price has fallen.

worth is..

worth is how much you value something. it can very between people.

What does price depend on?

* The satisfaction that is gained from the product
* If demand rises this informs producers that the product is meeting consumer expectations and the price will rise as the market value has increased.

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Draw a excess supply diagram and what is excess supply?

Excess supply is when a seller sets a price of P1 causing **excess supply**, as supply exceeds demand, so some of the goods or services are left **unsold**.

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The market only clears at price P, where both demand and supply are equal to Q.

Excess supply occurs when supply outstrips or is greater than demand. What does this mean?

* This means that firms will have to lower their price in order to sell the product.


* Alternatively, they could reduce supply and leave price the same.
* This is bad for producers but good for consumers

Draw a excess demand diagram and what is excess demand?

At a lower price than the equilibrium price there will be excess demand, as many sellers would be unwilling or unable to supply at that price. At P1 demand is exceeding supply, so that some buyers are unable to purchase that product. The market only clears at price P where both D+ S at quantity Q.

Excess demand occurs when demand outstrips or is greater than supply. What does this mean?

* Thus means that firms can raise their price in order to improve profitability
* Alternatively, they could increase supply and leave the price the same
* This is good for the firm but bad for consumers

What is disequailibrium?

The presence of excess demand or supply is a situation where the market is not in equilibrium.

consumer soverignty is..

consumers determine what is produced and for whom it is produced and thus rule the market.

How do consumers have the power to influence the allocation of resources?

* Their spending decisions will send signals to the producers about what to produce and how many to produce.

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Explain the term allocation of resources?

How scare resources are distributed among producers and how scarce goods and services are allocated among consumers

explain the term determination of price?

The interaction of the free market forces of demand supply to establish the general level of price of a good or service

Explain the term market forces?

These are factors that determine price levels and the availability of goods and services in an economy without government intervention.