Role Of Markets Flashcards
Market
Situation in which buyers and sellers are in contact with exchother for the purpose of exchange
Function of prices
- Prices help to allocate resources
- Prices ration limited supply
- Prices reflect relative opportunity cost of goods/services
- Prices act as a signal to adjust behaviour
Prices help to allocate resources
What yields the highest return/profit to producers
Prices ration limited supply
As scarcity increases, the more expensive to obtain, communicates message about how much supply is available. Scare goods only bought by people who value it most
Prices reflect relative opportunity cost of goods/services
The higher the price is the higher the opportunity cost it.
Prices act as a signal to adjust behaviour
Consumer obscure trends in prin changes and adjust personal behaviour
Roles of a market
- Reflect opportunity cost
- Determine price
- Functions as solution to economic problem
Reflects opportunity cost
As price increases, so does opportunity cost
Determine price
Market forces ( supply and demand ) set prices
Functions as solution to economic problem
Price answers 4 key questions
Positives of markets
Roles of market
Negatives of market
Market failure, misallocation of resources, prices too low, decrease in economic and social welfare
