U1 AOS 2 - Lesson 1 - What is a market? Flashcards
What is a market in microeconomics?
A place where buyers and sellers come together to exchange goods and services.
True or False: A market can only exist in a physical location.
False: Markets can exist in physical locations or virtually, such as online marketplaces.
A __________ is an arrangement that allows buyers and sellers to interact.
market
Multiple Choice: Which of the following is NOT a characteristic of a competitive market?
A) Many buyers and sellers
B) Homogeneous products
C) Price maker
D) Free entry and exit
C) Price maker
What role does price play in a market?
Price acts as a signal to both buyers and sellers, guiding their decisions on what to buy or sell.
True or False:
In a monopoly, one seller controls the entire market.
True
What is the purpose of a market?
The purpose of a market is to facilitate the exchange of goods and services between buyers and sellers.
What determines the equilibrium price in a market?
The equilibrium price is determined by the intersection of supply and demand.
Which of the following factors can shift the demand curve?
A) Consumer preferences
B) Technology
C) Production costs
D) All of the above
A) Consumer preferences
Define the term ‘product’.
A product is a good, service, or system offered to satisfy consumer demand in the market. It can be tangible, like physical goods, or intangible, such as a service, experience, or idea.
Which of the following situations is most likely to reflect black market activity?
A) Bill purchases an AFL Grand Final ticket
B) Jack provides plumbing services for cash, without charging GST
C) Henry purchases a house from a gangster through a real estate agent
D) Bill the farmer sells cattle to an Indonesian abattoir
B) Jack provides plumbing services for cash, without charging GST
What are the three basic economic questions every society must answer?
What to produce, how to produce, and for whom to produce.
True or False: Economic scarcity means that resources are unlimited.
False
Which of the following options is NOT one of the basic economic questions?
A) What to produce
B) How to produce
C) Who produces
D) For whom to produce
C) Who produces
Why is it important for societies to answer the basic economic questions?
To efficiently allocate limited resources to meet the needs and wants of the population.
Price
The rate of exchange of the good or service that is being sold
Price Mechanism / Market Mechanism
Describes how the forces of supply and demand influence prices of goods and services, which then coordinates the way productive resources are allocated in the economy
How market answers ‘what and how much to produce?’
- Consumers decide what types of goods or services will be produced by what they demand or purchase in markets
- Producers respond to this by producing wanted and/or profitable goods or services
How market answers ‘how to produce?’
- Businesses generally use the most efficient, lowest cost and most profitable methods to produce goods and services
- Consumers, acting rationally, will choose the good/service at the lowest price which meets their needs
How market answers ‘for whom to produce?’
- Consumers with the greatest income/highest willingness to pay will be able to pay the equilibrium price so will get access to the good/service
- Consumers with the lowest income/least willingness to pay will likely be unable to pay the equilibrium price so will not recieve the good/service
Good
A physical or tangible product
Service
An intangible act or product (so cannot be stored/transported) and is unique (so cannot be repeated)
How a market develops
- There must be demand for the product – willingness to purchase a product
- There must be supply for the product – willingness to produce a product
What happens in a market
- Product sold is the buyer and seller believe the price is right
- Product only sold if buyer and seller believe they will be better off (utility maximisation)
