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IB ECONOMICS HL PRICE MECHANISM CHEAT SHEET
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IB ECONOMICS HL PRICE MECHANISM CHEAT SHEET
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prices determined by
forces of demand &
markets
supply in
competitive
FUNCTIONS OF PRICE MECHANISM
1 Prices as
signals and incentives & the allocation of resources
condition must decide
of scarcity forces societies to make choices economies what
point the PPC to
-
on on
produce ( This involves choice of what I how to produce -
which of its available resources t in what quantities ,
to allocate
to produce a chosen combination of goods f services ) These decisions ,
in a market economy ,
are made by prices in the
free market interactions of demanders & suppliers market mechanism Invisible
resulting from this is called the
-
-
Hand Market
of the
As
Signals T
prices communicate info to decision -
makers
As Incentives motivate decision
respond
- makers to
prices
-
to the
information
an Adjustment of price to increased demand b .
Adjustment of price to increased supply
p
5
the
higher price signalled to the si
excess
S2 the
falling wage signalled
c producers that a
shortage for the
§ a
% to firms that there was a
M
P2
- - - - -
•
-
•
- - -
\
p •
- - - - - - - -
- - - - - -
B
- - - - - -
- - - - - - - = - -
3
f !
'
'
product emerged surplus the labour market
'
has ; increase i : in
A
'
B F i . !
: .
"
Py price incentivized producers f I it them incentive
to wz
gave an
e
& i
q in
- - -
•
- - - - - -
.
- - - - - -
- - - - - - - - - - - -
c-
- - -
- - - -
- -
- - - - -
' I i i
Dz
i
' ' D '
, '
i e :
i i '
: i
supply of to hire labour
,
the I more
,
i more i
i shortage
i
i =
, , '
'
!
,
i i i :
:
i i
Dy i excess demand i i
, i D
( Q2 Q1 ) product !
,
.
i
! !
-
i i
o
Q1 Q3 Q2 Q o Qi Q's Q2 Q
quantity of labour
Prices and
2 Rationing ur method of approaching / parceling out
goods Is among consumers / households
determined
whether or not a consumer will
get good a is
by the price of a good
Price Rationing is the real -
life example of the market mechanism at work / Adam Smith 's Invisible Hand
,
co -
ordinating buying and
selling decisions of decision-making units in an
economy w/o central
authority
* Non
price rationing
( cases where
price is not the
only determining factor) for example lines &
-
-
queues where consumers reaeve the production a
first come first serve basis .
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