2.4 Price

Price

the sum of money a consumer has to pay for a good or service. it is determined by the interaction of supply and demand

Efficiency

concerned with the optimal production and allocation of scarce resources

Equilibrium price and quantity

where the quantity supplied exactly matches the quantity demanded

Allocation of resources

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

Determination of price

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

Market forces

factors that determine price levels (interaction of demand and supply) and the availability of goods and services in the economy without government intervention

Price as a reflection of worth

price is often used to indicate worth- not always accurate

worth = how much u value summin

worth varies due to:

• different ppl

• changes in fashion and tastes

• diff situations

asking price is js wat the seller wants but the acc market worth/value depends on wat buyers r willing and able to buy. if a house is listed for 250k but no one is willing and able to buy tha shi/ no demand for it, then its not its true market value, true price is wat buyers finna acc pay

cost (differs to price)

how much money a producer must pay to provide the product

The role of price

price has a role to play in determining an efficient distribution of resources

in a market economy, price is the means by which these scarce resources are allocated between competing users

efficiency def again

the optimal production and distribution of scarce resources

3 Functions in determining the efficient distribution of resources and price

STR

Signalling

Transmission of preferences

Rationing

Signalling

• Prices change to signal where resources are needed and where they are not

• Price increase = due to more demand, need more supply, signals more resources are required

• Price decrease = due to less demand, need less supply, signals fewer resources are required

Transmission of preferences

• Producers’ choices that send information to suppliers of resources about their changing needs

• Higher prices = producers need more resources from suppliers to increase supply

• Lower prices = producers need fewer resources from suppliers to decrease supply

quick memory trick to remember difference between signalling and transmission

Signalling = price gives information
Transmission = that information gets passed on and acted on

example of transmission of preferences- mobile phone manufacturer

Rationing

• If resources are scarce, prices increases – only those willing and able to pay the price are allocated the resources.

• For example, the demand for tickets among England supporters for an Ashes cricket series will be very high and exceed supply, therefore the price rises and the higher price acts as a rationing device to equate demand with supply.

Changes in the equilibrium point are caused by either

An outward or inward shift in the demand curve (PASIFIC)

An outward or inward shift in the supply curve (PINTSWC)

DRAWING a change in equilibrium

examples of change in equilibrium graphs

Disequilibrium

refers to a situation where demand and supply are not equal, meaning the market is not in balance

Excess demand

shortage of supply

demand is greater than supply

not enough goods for everyone who wants to buy

illustrating excess demand

Excess supply

shortage of demand

supply is greater than demand

too much of a product is unsold

illustrating excess supply

Explaining graph

6mark analyse w a graph