Market Organisation

Question 1

Macroeconomics

Answer 1

Macroeconomics is the branch of economics that studies economic aggregates (grand totals), for example the overall level of prices, output and employment in the economy

Question 2

Microeconomics

Answer 2

Microeconomics is the branch of economics that studies atomistic units of analysis (e.g. households, firms, industries). It studies the interrelationships between these units in determining the pattern of production and distribution of goods and services

Question 3

8 Basic Principles

Answer 3

1, Goods and services are produced for profitable exchange
2, Human labour is a commodity for sale – labour is the source of value
3, The invisible hand
- Reconciles self-interest and social and economic good
4, Profit motive
5, Law of supply and demand
6, Law of Competition
- Engenders efficiency
- Engenders need fulfilment
7, Division of labour
- Knowledge management
- Co-ordination and specialisation
- ‘Tribes of Philosophers’
8,Laissez faire
- Self regulating

Question 4

Market

Answer 4

A market is collection of buyers and sellers that, through actual or potential interactions, determine the price of a product and quantity produced

Question 5

Marginal utility

Answer 5

The increase in utility obtained by consuming or using one more unit of that good or service

Question 6

COST-OF-PRODUCTION THEORY OF VALUE

Answer 6

1, THE PRICE OF AN OBJECT IS DETERMINED BY THE SUM OF THE COST OF RESOURCES THAT WENT INTO MAKING IT:

• LABOUR
• TAXATION
• CAPITAL
• LAND
• TECHNOLOGY

Question 7

Assumption of Market

Answer 7

1, Buyer’s willingness to pay is determined by marginal utility
2, Sellers willingness to sell is determined by cost of production
3, SUPPLY AND DEMAND ARE UNDERPINNED BY MARGINAL UTILITY AND COST OF PRODUCTION
4, People have rational preferences among outcomes that can be identified and associated with a value
5, Individuals maximize utility and firms maximize profits
6, People act independently on the basis of full and relevant information
7, Transactions are costless

Question 8

Limitations

Answer 8

1, Prices and demand reflect issues other than marginal utility and cost of production
2, Certain markets do not perform due to informational problems
- Asymmetric information
- Adverse selection
- Market for lemon ( Refurbishing Cars)
3, Certain prevalent economic behaviours (vertical and horizontal integration) cannot be explained via
- Cost of production
- Supply and Demand
4, Frame of reference is society
5, Misallocation of resource in computing industry
6, Winner takes the market and increases return
7, Treats firms as the same
8, Cooperate social responsibility ?
9, Network theory of co-operation ?
10, Does not focus on explaining actual economies, but instead on describing a idealized situation of optimal resource allocation
11, Competition equilibrium does not function
12, Prescriptive value ?