OJA 2 - Market & Market Mechanism

Question 1

What is market?

Answer 1

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

Question 2

What is a barter trade?

Answer 2

It is exchanging goods/services for other goods/services

Question 3

What is a utility?

Answer 3

A measure of a relative satisfaction from consumption of goods

Question 4

What is a market mechanism?

Answer 4

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

Question 5

What is a demand?

Answer 5

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)

Question 6

What is a supply?

Answer 6

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)

Question 7

What is price?

Answer 7

It is an incentive, it is the amount of money the buyers are prepared to pay

Question 8

What is a market equilibrium?

Answer 8

It is an ideal situation when quantity of supply and demand are equal

Question 9

What is market surplus?

Answer 9

Happens when quantity of supply is larger than quantity demanded

Prices go DOWN

Question 10

What is a market shortage?

Answer 10

Happens when quantity of supply is smaller than quantity demanded (toilet papers in pandemics)

Prices go UP

Question 11

What is a the law of demand?

Answer 11

An increase in price decreases quantity demanded

i.e. If the price is too high, buyers are no longer willing to buy it

Question 12

What is the law of supply?

Answer 12

An increase in price causes an increase in quantity supplied

i.e. companies are willing to produce more with higher prices

Question 13

How do prices behave when demand exceeds supply?

Answer 13

Prices increase, they go UP

Question 14

How do prices behave when supply exceeds demand?

Answer 14

Prices decrease, they go DOWN

Question 15

What shape does the Demand curve have?

Answer 15

It has a DOWNWARD sloping shape (D -> for down)

Question 16

What shape does the Supply curve have?

Answer 16

It has an UPWARD sloping shape (S -> for sky)

Question 17

What are demand curve shifters?

Answer 17

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

Question 18

What are supply curve shifters?

Answer 18

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

Question 19

What is an axiom and how is it related to utility?

Answer 19

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