Chapter 6 - Prices

Question 1

What is price?

Answer 1

The monetary value of a product

Question 2

What to prices serve as? And how do they work?

Answer 2

Prices serve as signals. High prices signal buyers to buy less and producers to produce more. Low prices signal buyers to buy more snd producers to produce less. (Drive prices up)

Question 3

Prices help producers to do what?

Answer 3

Answer the three questions: what, how, and for who,

Question 4

The price system is a…

Answer 4

Efficient allocator of economic resources.

Question 5

Why are prices the best way to allocate? (4)

Answer 5

Neutral- they are equally fair for both the producer and consumer
Flexible- they can adapt to changing economic conditions
Familiar- everyone understands how it works
Efficient- because the market can determine on its own,

Question 6

What is rationing?

Answer 6

A system of allocating goods and services without prices in which the government decides everyone’s fair share.
Used in WWII

Question 7

4 problems with rationing?

Answer 7

1. Perceived fairness
2. Administrative expense- someone has to pay (printing/distribution/salaries)
3. Distorted incentives
4. Abuse and misuse- coupons are stolen, sold, and counterfeited (black market)

Question 8

What are the opposite goals of buyers and sellers?

Answer 8

Buyers- good deals at low prices

Sellers- high prices and large profits

Question 9

How do you know when the price is fair to both?

Answer 9

When the process is both competitive and the transaction is voluntary

Question 10

7 Main Factor that Affect Prices?

Answer 10

1. Product Cost
2. Quality
3. Service
4. Competition
5. Demand
6. Taxes
7. Uniqueness

Question 11

When prices are too high you have a…

Answer 11

Surplus: a situation where quantity supplied is greater than quantity demanded at a given price.

Question 12

When prices are too low you have a shortage…

Answer 12

Shortage: a situation where quantity supplied is less than quantity demanded at a given price.

Question 13

What is the thought question?

Answer 13

Is it a good idea to raise minimum raise.

Question 14

What are the 4 pro higher minimum wage arguments?

Answer 14

1. Increases the buying power of the poorest workers
2. Raises the standard of living for the poorest workers
3. It motivates workers to work harder
4. It helps decreases spending on social welfare programs

Question 15

What are the 4 anti arguments for minimum wage.

Answer 15

1. It causes fewer workers to be hired which increases unemployment.
2. It hurts small businesses.
3. It discourages poor workers from getting job skill and better employment opportunities
4. It forces buisnesses to raise prices.