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The Price Mechanism (Revision Quizlet Activity)

AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 5 Jan 2022

Here are sixteen key terms linked to the important topic of the Price Mechanism.

Key terms to revise

Asking price: Minimum price at which a security, commodity or currency is offered for sale on a market

Black market: Illegal market in which the market price is higher than a legally-imposed price ceiling

Cyclical demand: Demand that varies depending on the stage of the business cycle an economy is in

Disequilibrium: Prices where demand and supply are out of balance

Excess demand: Difference between the quantity supplied and the higher quantity demanded when price is set below the equilibrium price

Excess supply: When there are unsold goods at the current market price

Inventories: Unsold products, finished and unfinished, and the raw materials used to make them.

Invisible hand: How a market operates through the pursuit of self-interest to allocate resources in society's best interest.

Market incentives: Signals that motivate actors to change their behaviour perhaps in the direction of greater efficiency or profit

Price mechanism: Means by which decisions of consumers and businesses interact to determine the allocation of resources

Rationing function: A way of allocating scarce goods and services when market demand exceeds available supply

Shortage: Situation in which quantity demanded is greater than quantity supplied

Signalling function: When a changing price in a market sends important information to BOTH producers and consumers.

Utility: Measures the satisfaction that we get from purchasing and consuming a good or service.

Explaining the Price Mechanism I A Level and IB Economics

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