2.2 The role of markets in allocating resources Flashcards
1
Q
What are the 3 basic economic questions
A
- What to produce? (schools, military equipment, etc.)
- How to produce? (more capital-intensive or more labour-intensive)
- To whom to produce? (to those who can afford or to everyone)
2
Q
What is a (free) market system)
A
- No government intervention
- Firms look to efficiently allocate resources through forces of supply and demand
- Firms seek to make a profit
3
Q
What is the price mechanism
A
The forces of supply and demand used to determine the price of a good/service
4
Q
What are the uses of the price mechanism
A
- Determines the price of a good/service
- Provides information to producers and consumers as of where resources are/aren’t needed
5
Q
What are the 3 types of economic systems
A
- (free) market system
- planned economy
- mixed economy
6
Q
Who creates economic systems
A
- Consumers
- Producers
- Governments
- Special-interest groups (e.g. trade unions)
7
Q
What is market equilibrium
A
- Where demand = supply
- The price at which producers sell their stock at an acceptable rate
