Chapter 6 Flashcards
What is a market?
It is an institution or mechanism that brings together the buyers and sellers of a good or a service.
Absolute price:
It is the price (amount) that is paid / asked for a good or service and it is expressed in terms of Rands and
cents.
What are substitutes?
Any goods or services that can be used as replacements for each other because it satisfies the same
need, e.g. butter and margarine as well as sodas and other cool drinks.
Relative price (Real prices):
It is the price of one product in terms of another product.
Describe the term ‘market structures’
- Market structures define the different grades and forms of competition.
- Refers to the main characteristics of markets in which enterprises sell their products
What are complementary products?
- It is goods or services that are used together. A need cannot be satisfied if the product is not used
together with the other. - Change in price of one article, will lead to a change in demand of the other. E.g. if the price of a DVD
player increases, the quantity demanded of the DVD players will decrease.
What is the product market?
Is a place where goods and services can be bought.
What is the factor market?
Is the place where factors of production can be bought
Relationship between markets
PRODUCT MARKET
- Dependant on factor market
- All participants require goods
and services
FACTOR MARKET
- Factors valuable when required to produce
- Land & capital can be stored
- Labour is a derived demand
What is derived demand?
Only demanded for what it can produce and not for its own sake
What is labour intensive?
The production process is focussed on manual production by people
Interdependence of markets
Product markets cannot exist without Factor markets,- and vice versa.
FoP are only are only as valuable when there is a need for
them for production
Labour intensive vs capital intensive production, eg. Shortage of skilled labour vs unemployment as a result of capital intensive production.
There are THREE types of imperfect market structures:
- Monopolies
- Oligopolies
- Monopolistic competition
PERFECT MARKETS
It is a market structure with a large number of participants who are all price takers,
* There are no entry and exit barriers in the long run, all information is available to both buyers and
sellers and a homogeneous product is sold.
DEMAND RELATIONSHIPS
A demand relationship occurs when two or more goods and/or services are required at the same time because
they are used together.
