Important Market Terms

Question 1

Define Price and Value

Answer 1

Price mechanism: quantified value of an exchange

Value components: desire, utility, scarcity, and purchasing power

Question 2

Define Productivity and Costs

Answer 2

Cost plus profit = minimum price

Production costs influence the value to the customer

Essential production costs are the costs of capital, materials, and suppliers, labor, management, and overhead

Question 3

What is Market Interaction?

Answer 3

Market = transaction arena where suppliers and demanders define value through the price mechanism

If supply increases relative to demand, price decreases, and if demand increases relative to supply, price increases

Question 4

What is Market Equilibrium?

Answer 4

The price, costs, and value is theoretically the same

Changes in supply or demand cause market imbalances, resulting in equilibrium time lag. Supply and demand tend toward balance when they are equal