Price

•          Price–the monetary value of a product as established by supply and demand–is a signal that helps us make our economic decisions.

•          High prices are signals for producers to produce more and for buyers to buy less. 

•          Low prices are signals for producers to produce less and for buyers to buy more.

•          (Law of Supply/Demand)

•          Prices are neutral because they do not favor the buyer or the consumer.  They are the result of competition.

•          Prices are flexible, allowing for the “shocks” of unforeseen events and changes in the market.

•          Prices have no administration costs.

•          Prices are familiar and easily understood.

•          Rationing, or the system where the government decides everyone’s “fair” share, leads to the question of fairness.

•          Price adjustments help a competitive market reach market equilibrium, with fairly equal supply and demand.

•          Surpluses occur when supply exceeds demand.

•          Shortages occur when demand exceeds supply.

•          The equilibrium price is the price at which supply meets demand.

•          A change in price is normally the result of a change in supply, a change in demand, or both

To be competitive, sellers are forced to lower prices, which makes them find ways to keep their costs down.

•          To achieve economic equity and security we often establish PRICE FLOORS and PRICE CEILINGS

•          price ceiling: A maximum amount that can be charged

•          price floor:  A minimum amount that can be charged/paid (ex.  Minimum wage)

•          TO be effective, needs to be above equilibrium