Markets (week 2) Flashcards
What is the role of markets?
Markets facilitate trade and involve the exchange of goods and services, where ownership rights are exchanged.
Define Ownership in the context of markets.
Ownership refers to the right to regulate access to a good, including the right to exclude others and the right to consume or use the good.
In advanced economies, who is ultimately responsible for enforcing ownership rights?
In advanced economies, it’s the state that is ultimately responsible for enforcing ownership rights, allowing requisition in wartime, fines payment, and compulsory purchases.
What is required for markets to operate successfully regarding ownership?
Ownership must be alienable, meaning it can be transferred or sold, for markets to operate efficiently.
How do goods exchange in a barter economy versus a monetary economy?
In a barter economy, goods are exchanged for other goods, while in a monetary economy, goods are exchanged for money.
Describe different types of markets in terms of their operational hours.
Markets can be periodic (e.g., weekly), daily (e.g., high street), or open 24/7 (e.g., internet-based markets).
What distinguishes a “free market”?
A “free market” is one where prices are negotiable (not fixed), and anyone, whether a buyer or seller, can participate. However, it still involves state regulation to control dishonest practices.
What does the scissors diagram in economic models represent?
The scissors diagram represents the intersection of demand and supply schedules, determining both equilibrium price and quantity traded.
: What are the main components of transaction costs in markets?
Transaction costs include search costs, negotiation costs, quality control costs, and enforcement costs.
What is an oligopoly, and how does it affect pricing?
An oligopoly is a market with few producers. In a differentiated oligopoly, firms produce distinctive varieties, influencing prices based on consumer preferences.
How does product differentiation impact pricing in markets?
Product differentiation, where firms offer different varieties appealing to different groups, can influence pricing and competition in an oligopoly.
What are some critiques of the scissors diagram as a representation of real-world markets?
Critiques include ignoring product differentiation, the influence of monopoly and monopsony power, neglecting transaction costs, overlooking negotiation processes, and not considering interactions between markets.
