1.3 Price Determination Flashcards
equilibrium, consumer/producer surplus/price mechanism (5 cards)
1
Q
Market equilibrium
A
no tendency for price change as d=s
2
Q
Equilibrium price
A
market-clearing price no buyers left frustrated in hopes to buy goods
3
Q
4 functions of price mechanism
A
SIRA
- Signal shortage/surplus and need for ↑/↓ resources
- Incentivise producers to ↑/↓ output for profit
- Ration scarce resources by encouraging/discouraging consumption
- Allocate scarce resources efficiently
4
Q
Consumer surplus
A
Difference between the price consumers are willing and able to pay for a good/service and the price they ACTUALLY PAY
5
Q
Producer surplus
A
difference between the price producers are willing to sell for and the price they actually receive
