6

Question 1

Price

Answer 1

the monetary value of a product

Question 2

Prices serve as…..

Answer 2

Signals

Question 3

High prices signal….

Answer 3

High prices signal to buyers to buy less and producers to produce more.

Question 4

Low prices signal….

Answer 4

Low prices signal buyers to buy more and producers to produce less.

Question 5

Prices help producers and consumers answer the three basic questions of

Answer 5

Prices help producers and consumers answer the three basic questions of economics of what, how, and for whom to produce

Question 6

The price system is an efficient _______ of economic resources because prices are… (best way to allocate resources)

Answer 6

Allocator

Question 7

Neutral

Answer 7

equally fair to both producer and consumer

Question 8

Flexible

Answer 8

they can adapt to changing economic conditions

Question 9

Familiar

Answer 9

everyone understands how they work

Question 10

Efficient

Answer 10

because the market determines prices largely on its own

Question 11

Rationing

Answer 11

a system of allocating goods and services without prices in which the government decides everyone’s fair share

Question 12

When was rationing used

Answer 12

World War Two

Question 13

Problem with rationing;

Answer 13

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

Question 14

In a market economy, buyers and sellers have the exact opposite goals:

Answer 14

• buyers want to find good deals at low prices

* Sellers hope for high prices and large profits

Question 15

How do we know if a price is fair to both?

Answer 15

• when the process is both competitive and the transaction is voluntary

Question 16

What are the main factors that affect prices?

Answer 16

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

Question 17

When prices are too high you have a…

Answer 17

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

Question 18

When prices are too low you have a…

Answer 18

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

Question 19

Tough question: Is it a good idea to raise minimum wage?
Pros…
Cons…

Answer 19

Pro arguments:

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

Anti arguments:

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