Economics 2.4- The Role of Price
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And the role of Price
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11 Terms
Price
The sum of money a consumer has to pay for a good or service
Cost
How much money a producer has to pay to provide a product
Efficiency
Concerned with the optimal production and allocation of scarce resources
Equilibrium price and quantity
Where 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 (demand and supply), and the availability of good or service in an economy without government intervention
The roles of Price
Signalling
Transmission
Rationing
Signalling
Price signals where resources are needed
Transmission of Preferences
Producer’s choices that send information to suppliers about changing resource needs
High price= more supply
Low Price= less supply
Rationing
Prices increase to reduce the number of people able to afford the good
