1. Chapter 6: Prices

2. Section 6.1

3. Prices Price Price helps determine the WHAT to produce
Monetary value of a product
Act as signals that tell people to buy more or less of a product, and producers to produce more or less of a product
Price helps determine the WHAT to produce
Producers will profit as long as the cost the item remains lower than the price to consumers
Price system is more efficient when markets are competitive

4. Advantages of Price Prices are neutral Prices are flexible
They don’t favor either side
Prices are flexible
They can adapt to change
Prices are familiar
Easy to understand
Prices are efficient
The market determines price without administration

5. Section 6.2

6. Buyers vs. Sellers When prices are too high When prices are too low
A surplus will occur when QS is greater than QD at a given price
Prices tend to decrease as a result of the surplus
When prices are too low
A shortage will occur when QD is greater than QS at a given price
Prices will tend to increase as a result of the shortage

7. Equilibrium Equilibrium price Equilibrium quantity
The point where QS = QD
The point on a graph where price intersects with quantity
The price that clears the market
Equilibrium quantity
Quantity supplied that is equal to the quantity demanded at the equilibrium price

8. How do changes in supply/demand affect prices?
When demand increases, the price increases
When demand decreases, the price decreases
When supply increases, the price decreases
When supply decreases, the price increases

9. Section 6.3

10. Price Controls Price ceilings Price floors
The highest legal price that can be charged for a product
Price floors
The lowest legal price that be paid for a product

11. Price Controls Subsidy Target price Nonrecourse loan
Government payment to encourage or protect a certain economic activity
Target price
Price floor for agricultural products set by the government to stabilize farm prices
The government ensures farmers receive a target price for their goods by granting nonrecourse loans
Nonrecourse loan
Loan that carries neither a penalty nor further obligation to repay

12. FOUR ADVANTAGES OF PRICES
NEUTRAL
FLEXIBLE
FAMILIAR
EFFICIENT

13. Cause and effect of surplus and shortage
 QS greater than QD
Surplus
Prices decrease
QS less than QD
Shortage
Prices increase