Identify two (2) functions of price in the market economy. B. Explain how price is determined in the market economy. C. What are the possible results if the government interferes with the price level that the free market has determined

Refer explanation and diagrams

Explanation:

A. Two functions of price:

a. Signalling function: Changes in price helps producers and consumers understand changes in market conditions. For example, when there is high demand for a product, the price will increase, signalling suppliers to produce more. On the other hand, when there is excess supply, this would be eliminated by causing the market price to fall,  Prices are adjusted to help determine where resources are required and where they are not.

b. Rationing function: Resources in the economy are limited and shortages are bound to occur. Prices help ration these scare resources when demand exceeds supply. When there is a shortage, prices will rise and only those who are wiling and able to purchase at the new price will consume the product, others will deter and fall back being unable or unwilling to afford. One example are auctions, where prices are bid up until demand falls enough to level the availability of a product and it is sold to the highest bidder/bidders.

B. Price in an economy is determined by: the interaction of quantity demanded and quantity supplied, creating the equilibrium price (refer Diagram 1). At price P1, quantity demanded exceeds quantity supplied which would create a shortage of Q3 to Q1. At price P3, quantity supplied exceeds quantity demanded, causing a surplus of Q3 to Q1. However, at price Pe, quantity supplied is equal to quantity demanded (Qe), creating neither a surplus nor shortage and this price is determined in the market economy.

C. When the government interferes in a market, the following can happen:

a. Surpluses or shortages

b. Consumer and producer surplus would not be maximized

c. Deadweight loss is created

d. National welfare compromised

Two common ways of government intervention are through price floors and price ceilings. In the example provided in the Diagram 2, a price floor is imposed in the form of a minimum price on wheat to protect wheat farmers from low prices.

a. Surplus created: At the free market equilibrium, price is Pe and quantity supplied equals quantity demanded of Qe. However, when the government sets the price at P3, quantity supplied rises to Q3 and quantity demanded falls to Q1 which creates a surplus of wheat from Q1 to Q3, a waste of valuable resources.

b. Consumer and producer surplus not maximized: At the free market price of Pe, consumer surplus is the triangular area of A-Pe-X and producer surplus of the triangular area B-Pe-X. When the price is raised, consumer surplus falls to area A-Y-P3 and producer surplus falls to area Y-Z-B-P3.

c. Deadweight loss: This change in producer and consumer surplus creates a deadweight loss of the triangular area X-Y-Z.

d. National welfare is also compromised as the producer and consumer surplus are reduced and a deadweight loss is created.

sound is invisible, but sometimes we can feel it. when a kettle-drum is thumped with a stick that time the tight drum skin moving up and down very quickly for some time and then it pumped sound waves into the air. loudspeakers also work in a similar manner.

components of a speaker:

electromagnet

in order to translate an electrical signal into an audible sound, an electromagnet is used in looudspeakers

  suspension

suspension is used to   center the voice coil in the gap of the magnet and it exerts a restoring force to keep it there. suspension is used to limits the maximum mechanical excursion of the diaphragm and voice coil.

voice coil

voice coil is a coil of wire which is attached to the apex of a loudspeaker cone. it provides the motive force to the cone by the reaction of a magnetic field to the current passing through it.

cone

in a   loudspeaker, a   thin, semi-rigid membrane attached to the voice coil, which moves in a magnetic gap due to which it vibrates   and produced sound. it is known as diaphragm and it can also be called a cone, though not all speaker diaphragms are cone-shaped.

surround

surround is also known as front suspension. surround is used to join the cone to the chassis. together with the suspension it controls the cone excursion, and it is also used to   determine how energy which is   travelling through the cone is absorbed, and how the speaker limits when it reaches the ends of its travel.

dustcap

dustcap is used to protect the voice coil from dust and dirt. it is a part of the cone.

how speaker work

the outer part of the cone is fastened to the outer part of the loudspeaker's circular metal rim. the inner part is fixed to   voice coil that sits just in front of a permanent magnet . when loudspeaker is hooked up to a stereo, electrical signals feed through the speaker cables into the coil. it will convert the coil into an electromagnet magnet . when electricity flows back and forth in the cables, the electromagnet either repels or attract the permanent magnet. this moves the coil back and forth, and it pull and push the loudspeaker cone. like a drum skin vibrating back and forth, the moving cone pumps sounds out into the air.in this way loudspeakers works.