Markets

Question 1

What choices have to be made to make the most efficient use of the available resources

Answer 1

1) What goods/services should be produced
2) How should they be produced
3) Who should get them

Question 2

What are the characteristics of a free market system

Answer 2

1) households and firms can own private property
2) Free enterprise, anyone can enter any market
3) Limited role of government apart from making laws
4) Economic resources are allocated by the price mechanism

Question 3

Define a market

Answer 3

Arrangement where buyers and sellers come in to contact and engage in trade

Question 4

Describe the difference between a product market and factor market

Answer 4

Product market are markets for goods and services
Factor markets are markets for the factors of production

Question 5

What are the 2 major assumptions made in economic models describing markets

Answer 5

1) households and firms want maximise their own welfare/gain
2) households and firms act rationally when in pursuit of this objective (make decisions where the MB is greater than or equal to the MC)