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prices
Neutrality: "Prices" favor neither the producer or consumer
Flexibility: "Prices" in a market economy help provide flexibility.
Familiarity: People have known about "Prices" all of their lives.
Efficiency:"Prices" have no cost administration.
Prices
prices as a system
A price system can help allocate resources within and between markets.
the overall impact of higher prices in one market is to shift productive resources out of some industries and into others.
Because it helps allocate resources between markets, the price system is considered an informational network that links all markets in the economy.
what if we didn't have prices?
Rationing is a system in which an institution,
usually the government, determines how
much of a product or service one gets; in
rationing there is no monetary price put on
a good or service.
• Problems with rationing include unfairness,
administrative costs, and the tendency to
abuse or corruption.
Prices of widely used goods may have ripple
effects throughout an economy, affecting the
allocation of resources and the efficiency of
other economic sectors
why prices are important
Prices are decision-making that affect the behavior of individuals, businesses, markets, and industries.
Prices acts as signals that tell people to buy more or less of a product, and producers to produce more or less of a product.
Prices help answer the questions WHAT, HOW, and FOR WHOM to produce because they are neutral, flexible, familiar, and efficient.
How Prices work
What if we did not Have Prices
Rationing is a system in which government decides everyone's "fair" share.
Implementing a rational system that everyone perceives as fair is almost impossible.
Rationing has high administrative expenses.
Rationing distorts market incentives and does not solve the basic problem of supply and demand.
Rationing systems can be abused and misused fairly easily.
• Prices are signals; they can be incentives
to encourage us to buy something or
disincentives that discourage us from
making a purchase.
• In a perfectly competitive market, prices are
neutral and favor neither the producer nor
the consumer. Prices are also flexible, taking
into account unusual or unforeseen events
that affect the making or marketing of a
product.
• Prices are familiar, as all items that are sold
have a price, and they are efficient insofar as
they are determined by supply and demand
design by Dóri Sirály for Prezi