Explain how price can be a regulator, that is, how it can coordinate the plans of buyers and sellers
What will be an ideal response?
If the price is too high, the quantity supplied exceeds the quantity demanded so there is a surplus. The surplus forces the price lower. The lower price increases the quantity demanded and decreases the quantity supplied bringing the market to equilibrium, where the quantity demanded equals the quantity supplied and where the plans of buyers and sellers are coordinated. If the price is too low, the quantity demanded exceeds the quantity supplied so there is a shortage. The shortage forces the price higher. The higher price decreases the quantity demanded and increases the quantity supplied bringing the market to equilibrium, again coordinating the plans of buyers and sellers.
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Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because
A) some individuals in both countries may be made worse off because of trade. B) trade restrictions are likely to be imposed as trade grows over time. C) they do not account for the reduction in wages that occurs in both countries as a result of trade. D) in the real world, rich countries can take advantage of poor countries.
What is a seller's opportunity cost?