Topic 2 - How Markets Work Flashcards
What are the three main sectors in the economy?
Firms, households, the government
What does an economic system do?
It organises resources for the production of goods and services.
It also satisfies the wants and needs of people who are part of the system.
What are markets
Where buyers and sellers come together
What are the benefits of the market?
- It brings together buyers and sellers
- It helps to allocate resources to goods that are in demand
- It coordinates decision making
- It provides plenty of choices
- Competition in the market helps to keep prices down
Define demand
The quantity demanded is the amount of a good that a buyer is willing and able to purchase.
What factors determines the demand?
- Price of a good
- Price of other goods
- Income
- Tastes
- Expectations
What is the demand curve?
A graph of the relationship between the price of the good and the quantity demanded.
What is the demand schedule?
A table that shows the relationship between the price of the good and the quantity demanded.
What is the law of demand?
The quantity demanded of a good falls when the price of the good rises.
What is the slope of the demand curve?
It is downwards sloping.
What causes a movement along the demand curve?
A change in price
How does the demand curve shift when demand decreases?
It shifts to the left
How does the demand curve shift when demand increases?
It shifts to the right
Define supply
Quantity supplied is the amount of a good that a seller is willing and able to sell
What factors determine the supply?
- Price of the good
- Price of other goods
- Costs of the factors of production
- Technology
- Tastes
