2.1 The role of markets Flashcards
What is a market?
Brings buyers and sellers together. Both buyers and sellers act in their own interests. The seller responds to the buyers wants.
What are the characteristics of a market?
- a physical place where buyers and sellers have contact
- a willingness to trade or exchange certain goods
- Markets are competitive and driven by the price system
4.Prices invariable fluctuate
What are submarkets?
A recognized/ distinguishable part of a market also known as a market system. e.g. in a food market there is fish, meat, veg
What is a Barter system?
Bartering is an exchange of goods and services between two parties or more without the use of money. It is a type of exchange in which a double coincidence of wants is needed. Hence the importance of money as a medium of exchange.
The theory of price.
If the price falls it signals to consumers that the product is relatively cheap and therefore purchases of the goods/service increase. This signals to suppliers that because the price has fallen to remain competitive they must also decrease prices of their goods/services.
What are the functions of price in a market?
Allocation- Allocating scarce resources amongst competing uses
Rationing - Prices serve to ration scarce resources when market demand outstrips supply
Signalling - Prices adjust to demonstrate where resources are required and where they are not
Incentive - e.g. when the price of a good rises, quantity supplied increases as firms respond.
What is specialization?
The concentration by a worker or workers, firm, region or whole economy on a narrow range of goods/ services. Specialization happens at all levels within extended families, firms and organisations, countries and also in regions of countries.
