OJA 2 - Market & Market Mechanism Flashcards
What is market?
It is a mechanism for exchange activities and they result in the form of goods and services - among various economic subjects called market agents.
Agents act as buyers and sellers to exchange goods and services by means of money
What is a barter trade?
It is exchanging goods/services for other goods/services
What is a utility?
A measure of a relative satisfaction from consumption of goods
What is a market mechanism?
It is a process in which 3 main components interact - demand, supply and price
They are constantly on the move, most of the movement is kept in motion automatically
What is a demand?
It is a quantity of certain type of goods/services which the buyers are willing to buy at a certain price (has downward sloping shape)
What is a supply?
It is a quantity of a certain type of goods/services which the sellers are willing to sell at a certain price (has an upward sloping shape)
What is price?
It is an incentive, it is the amount of money the buyers are prepared to pay
What is a market equilibrium?
It is an ideal situation when quantity of supply and demand are equal
What is market surplus?
Happens when quantity of supply is larger than quantity demanded
Prices go DOWN
What is a market shortage?
Happens when quantity of supply is smaller than quantity demanded (toilet papers in pandemics)
Prices go UP
What is a the law of demand?
An increase in price decreases quantity demanded
i.e. If the price is too high, buyers are no longer willing to buy it
What is the law of supply?
An increase in price causes an increase in quantity supplied
i.e. companies are willing to produce more with higher prices
How do prices behave when demand exceeds supply?
Prices increase, they go UP
How do prices behave when supply exceeds demand?
Prices decrease, they go DOWN
What shape does the Demand curve have?
It has a DOWNWARD sloping shape (D -> for down)
What shape does the Supply curve have?
It has an UPWARD sloping shape (S -> for sky)
What are demand curve shifters?
these are factors that change the demand by: • changes in income (buy more/less) • in number of costumers • in taste / preference • in price of substitutes • in prices of related products • traditions, habits, addictions
What are supply curve shifters?
These are factors that change the supply by: • changes in technology • in resouce prices - inputs • in natural conditions (agriculture) • in taxes • in expectations • in prices of related goods/services
What is an axiom and how is it related to utility?
It is a statement that generally accepted to be true but needn’t be so
Axioms are relating to utility:
- we try ti maximize our utility
- there is a principle of diminishing marginal utility (= each additional unit of a product decreases its marginal utility)
- a single utility is difficult to measure, but they can be compared
