Markets

Question 1

Characteristics of a market

Answer 1

Buyers- demand
Sellers- supply
Voluntary exchange- voluntary participation
A way for buyers and sellers to undertake the trade- a location (physical/virtual)
A product (good/service/resource)
A price (equilibrium)

Question 2

Features of a market economy

Answer 2

The price mechanism- “the invisible hand”-equilibrium
Property rights and private ownership- exclusive rights of ownership
Economic freedom- households have the right to participate in a market or not
Economic incentive- consumers aim to maximise satisfaction, producers aim to maximise profit
Consumer sovereignty- “consumer is king” they determine what and how much is produced

Question 3

Macroeconomics

Answer 3

Deals with the economic problem from societies point of view, it is concerned with the performance of the whole economy.

Question 4

Microeconomics

Answer 4

Deals with the economic problem from an individual perspective. It attempts to understand how consumers and producers make decisions. It studies how markets and prices work to allocate resources between all competing industries in the economy

Question 5

Factors of production

Answer 5

Land- natural resources eg. Trees/solar energy
Labour- wage workers used in production (gets paid by the hour)
Capital- tools to complete production eg. Machinery, computers
Enterprise- ideas and entrepreneurs eg. CEOs Bill Gates

Question 6

Needs

Answer 6

Goods and services necessary for survival, eg. Food, water, shelter

Question 7

Wants

Answer 7

Goods and services that are not needed for survival but are nice to make life more comfortable
Eg. TV, smartphone, 3ply toilet paper

Question 8

The economic problem

Answer 8

Is that there are not enough resources to satisfy our unlimited needs and wants

Question 9

Opportunity cost is

Answer 9

The cost of giving up the next best g/s you can buy

Eg have $20 buy a $20 t-shirt, opportunity cost is the CD for $19.95

Question 10

What are the three big choices for any economy

Answer 10

What to produce
For whom
How much

Question 11

PPF will be a straight line when

Answer 11

When opportunity cost is constant, trade off is a 1:1 ratio

Resources are equally suited to producing all types of goods

Question 12

PPF usually curved because?

Answer 12

Law of increasing opportunity cost

OC of increasing production of one good in an economy with scarce resources normally increases

Question 13

Distinction between product and factor markets

Answer 13

Product market- the trading of finished goods or services eg. Study guide, law services
Factor market- the buying and selling of factors of production, (land, capital, labour, enterprise)

Question 14

Characteristics of a competitive market

Answer 14

Large # of firms
Firms price takers
Homogenous products
Low barriers of entry
These are free markets, all others are failed

Question 15

Imperfect markets

Non-competitive

Answer 15

Small # of firms
Product differentiation
Firms price setters
Entry to market restricted/ high barriers of entry