2. Intro to Economics Flashcards
What is economic problem?
Unlimited wants and needs and limited resources
What 2 concerns does economics deal with?
- 1 – People are faced with limited resources.
- 2 – People have unlimited wants.
To help solve consumers choices, all markets must answer three fundamental questions
- What goods and services will be produced and how many?
- How will the goods and services be produced?
- For whom will the goods and services be produced?
What is a product market?
Product markets deal with the buying and selling of goods and services. In a product market the consumer is the demand side of the market. Producers or firms are the supply side. They produce goods and services and sell them to households (consumers)
Name 3 imprtnant elements of a market
- uyers (demand)
- Sellers (supply)
- Something to exchange (a good, a service or a resource)
What are 2 types of markets
Product Market
Factor Market
What is oppurtuntiy cost?
Whenever a choice is made by a consumer, there is an opportunity cost. The opportunity cost represents what you had to give up as part of your choice.
Opportunity cost – The value of the best alternative that you give up.
EG OF PRODCUT MARKET
Example – Coles (producers) selling to households (consumers).
What is a factor market?
Factor markets deal in the buying and selling of factors of production.In a factor market households sell their resources to firms. In a factor market households represent the supply side of the market. Firms represent the demand side.
Example of factor market
Example – You (household) supply labour to firms to produce goods and services.
What are 2 types of markets
Competitive and Non Competitive
Factors of Production
Land
Labour
Capital
Enterprise
Compettive Market characteristics
- Firms are price takers – meaning they must take or accept whatever price is set by the market.
- They sell homogenous (very similar) goods. Example – fruit, a coffee, clothes.
- A large number of buyers and sellers
- There are no barriers to entry or exit meaning that it is easy to enter or exit the market.
Egs of competive markets
- Fruit and vegetable shops
- Cafes
- Hair Dressing Salons
Non Comeptive Market charactersitics
NON COMPETITIVE MARKET
- A small number of firms
- Firms are price setters – they have the market power
- They have product differentiation – their products are “different” in the consumers eyes.
- Entry into the market is restricted, usually due to cost, technology or research.
- Monopolies are extreme versions of non competitive markets
- An oligopoly (few companies) or duopoly (two companies) is also a form of non competitive market.
