The Price Mechanism

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1、2.ThePriceMechanismDemandThisisdeterminedbytheconsumerandistheamountofaproductthataconsumerwillbuyatvariousprices.Thefollowinginformationwasconstructedfromaclassactivity:DemandscheduleforMineralWater:Ademandscheduleisatablethatshowstherelationshipbetweenpriceandquantitydemanded.

2、QuantityDemanded(bottles)20406080100Price(cents)2001501006030DemandCurve:Agraphofthedemandscheduleiscalledademandcurve.SupplyThisistheamountofaproductthataproduceriswillingtosellintothemarketatvariousprices.Thefollowinginformationwasconstructedfromaclassactivity:7Supplyschedulef

3、orMineralWater:Asupplyscheduleisatablethatshowstherelationshipbetweenpriceandquantitysupplied.QuantitySupplied(bottles)8070605040Price(cents)2001501006010SupplyCurve:Agraphoftheabovesupplyscheduleiscalledasupplycurve.EquilibriumWhenyouplotbothcurvesonthesamegraphyouwilldiscovert

4、hefollowingdiagram:7Whatisthesignificanceofthepointwherethetwographsmeet?Itisthepointofequilibriumorthepointwheredemandandsupplyareequal.Ifyounoticetheamountsuppliedbyproducersandtheamountdemandedbyconsumersisequalatthispoint.Atapriceof100centsthesupplyofmineralwaterisequaltothe

5、demandformineralwater.Thispointiscalledequilibrium.Thereisnosurplusproductionofmineralwaterandnoshortageofmineralwateratthispoint.Sixtybottlesofmineralwaterwillbeexchangedatapriceofonedollar.Whatisthepricemechanism?Thepricemechanismexplainshowtheforcesofdemandandsupplydeterminet

6、hefourfundamentaleconomicquestions.Thedemandandsupplyofgoodsandserviceswilldetermineanequilibriumpriceandquantityforallproducts.Theconsumerdecideshowmuchofaproductthattheywanttobuyatvariousprices.Theproducerdecideshowmuchtheywanttosellatvariousprices.Whenproducersandconsumersagr

7、eeandsupplyanddemandareequalthereisanequilibriumpointatwhichthemarketpriceandquantityareset.SolutionstotheEconomicProblemWhatarethefourfundamentalquestionsthatalleconomicsystemsmustanswer?1.Whattoproduce?Theeconomymustdecideoutofalltheproductsthatconsumerswant,whichoneswillbesat

8、isfied.2.Howmuchtoproduce?Oncetheeconomyhasdeci