3 Price mechanism, markets Flashcards
what are the three functions of the price mechanism ?
- Signaling = prices change signaling to producers to increase or decrease supply
- Incentive = if prices increase suppliers are going to increase supply and more producers will enter the market (more profits)
- Rationing = when demand is greater than supply prices are pushed up, so the goods and services are rationed out to those who can afford it.
what is a stock ?
a stock is a form of debt or IOU issues by companies or governments
whats the difference between a soft commodity and a hard comodity ?
hard = products extracted from the ground/earth e.g. copper. Usually inelastic because it takes time and capital to extract. Its also usualy finite.
SOFT = agricultural products euch as corn or barley Useually inelastic too because crops cannot easily be altered (changed)
what are the 3 types of markets ?
Housing market - rental or owner occupied market
Stock market - if confident for future profit, demand for the companies shares will increase so share price will rise.
Commodities market - hard and soft
what is meant by a rational consumer?
is someone who when making a choice always focuses primarily on the maximisation of their private benefits. They aim to maximise utility.
what is marginal utility ?
the increase in satisfaction (utility) gained from each extra unit of consumption.
e.g. DOUGHNUTS
2nd donut doesnt provide as much utility as the first donut because the person isnt as hungry.
whats the law of diminishing marginal returns?
as you eat more plates of food (or consume more of the product) your additional utility starts decreasing. This is why the demand curve is sloped downwards, because once a consumer buys one product the utility for another is less than the first one so the price they are willing to pay decreases.
what are the two types of thinking and decribe them?
rational = logical, clear, deliberate
automatic / irrational = habit, routine, unconscious
what things may effect our purchasing decisions ?
- habit
- what we feel is the ‘right thing to do’
- what other people are doing (herd mentality)
what is a nudge?
something that grabs our attention and influences the choices we make
e.g. arrangements of food , lines getting closer together before a round about to get drivers to slow down
true or false, if information is presented simply individuals are more likely to comply?
true
true or false, default settings increase likely hood of people complying
true
