Coordination via Prices Flashcards

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What does 'coordination via prices' mean?

It is how changing prices guide buyers and sellers so demand matches supply.

What is the equilibrium (market-clearing) price?

The price where quantity demanded equals quantity supplied. There is no shortage or surplus.

If demand is greater than supply, what happens to price and why?

Price rises. Higher price cuts demand and draws out more supply, reducing the shortage.

If supply is greater than demand, what happens to price and why?

Price falls. Lower price boosts demand and some firms supply less, clearing the surplus.

How do prices ration scarce goods?

By rising when goods are scarce. Higher prices mean fewer buyers, so limited stock lasts for those willing to pay.

How do prices help many people coordinate at once?

One price change reaches all buyers and sellers. Each adjusts their plans without a central order.

What role do profits and losses play in coordination via prices?

High prices and profits attract resources to that market. Low prices and losses push resources away.

After a poor harvest cuts wheat supply, how do prices coordinate?

Wheat price rises. Shoppers buy less or switch foods, and farmers grow more next season.

If a new game console is very popular, how do prices coordinate?

Price rises. Some buyers wait, and firms raise output, easing the shortage.

In labour markets, how do wages coordinate workers and jobs?

When jobs are hard to fill, wages tend to rise and more people offer to work. When too many workers compete, wages tend to fall.