Prices and Decision Making Chapter 6

Economics

Serves as an allocation signal when established by supply and demand

Price

When the price floor is high in a competitive market,

Surplus occurs

If a product is in surplus supply, the price will show

Above Equilibrium

In a market economy, a high price is a signal for,

Buyers to decrease consumption and sellers to increase production

When economic or political conditions are unstable,

The demand for gold increases

When prices are neutral they do not favor the buyer or consumer, they are a result of..

Competition

Prices have no..

Administration costs

The system where government decides everyone’s fair share is

Rationing

Rationing leads to..

Higher administrative costs and fewer incentives to work and produce

Price that “clears the market”

Equilibrium price

Occurs when supply exceeds demand

Surplus

Occurs when demand exceeds supply

Shortage

Price adjustments help a competitive market reach..

Equilibrium

The price at which supply meets demand

Equilibrium price

The theory of competitive pricing represents a set of ideal conditions and outcomes; it serves as a model to measure..

Market performance

To be competitive, sellers are forced to..

Lower prices

Keeps prices from falling too far

Competition among buyers

To achieve the goals of equity and security, they set..

Floor and ceiling prices

An example of a price floor

Minimum wage

Markets “talk” when..

Prices move up or down

Buyers and sellers respond to changes in the market through their…

Decisions