1.2 Market Allocation of Resources Flashcards
What is a market?
Where buyers and sellers interact/meet to trade goods and services
What is an economic system?
A network of organisations and institutions engaged within society to allocate scarce resources in an attempt to maximise social welfare
What is a market economy?
A market where resources are allocated by market forces
What is a planned economy?
A market where resources are allocated by control of the state/government
What is a mixed economy?
A market where resources are allocated partly by market forces and partly by the state
What is the price mechanism?
The interaction of supply and demand in a market economy that determines prices and the allocation of scarce resources
What does the signalling function do?
Provides clear information to both buyers and sellers about the market conditions
What does the incentive function do?
Creates incentives for households and firms to make decisions consistent with meeting objectives based on own self interest
What does the rationing (allocating) function do?
The price mechanism allocates and rations scarce resources to households and firms who are most willing and able to pay most in pursuit of self interest
