Kognity Ch. 1.1.1 - The nature of markets Flashcards
What is a market?
A market is where people willing and able to purchase a good, service or resource, and interact and carry out an exchange with those who are willing and able to provide that same good, service or resource. It is not always a physical place; it can be local, national or international.
What are the four types of markets?
- Product markets: where goods and services are sold.
- Factor markets: where resources are sold.
- Labour markets: where people offer their services in exchange for a salary.
- Financial markets: Where foreign currencies, company shares or other financial contracts are traded.
What is market power and how does it change with competition?
When an individual or firm has a lot of influence over the price at which they sell their goods/services, they have market power (also known as monopoly power).
When an individual or firm has to compete with other individuals or firms, they have little influence over the price at which they sell their goods/services (less market power) as prices will change depending on competition and consumer behavior.
In order to make predictions about patterns of economic behavior, economists assume that humans behave “rationally”. What does this mean?
Buyers and sellers, or economic agents, will seek to gain maximum benefit from a transaction. That is, consumers will seek to maximize their utility and producers will seek to maximize their profits.
What is utility, and what is the difference between total utility and marginal utility?
Utility is a measure of usefulness or pleasure that a consumer derives from consuming a product. It is never measured in monetary terms.
Total utility is the total satisfaction gained from consuming a certain quantity of a product.
Marginal utility is the extra utility gained from consuming more than one unit of a product. It is believed that, in the majority of cases, the marginal utility gained from extra units of a product falls as consumption increases.
