Unit 4 Decision making in markets (firm's supply)

Question 1

What is market?

Answer 1

The market for a given good or service is the set of all the consumers and suppliers who are willing to buy and sell that good or service at a given price

Question 2

Characteristics (assumptions)

Answer 2

Firms are price-takers (cannot influence the market price)
Many buyers and sellers
Homogenous goods
NO externalities (the benefit/costs do not spill over to third parties)

Question 3

What are externalities?

Answer 3

A cost or benefit imposed on third parties and it can be negative and/or positive

Question 4

Market equilibrium?

Answer 4

Occurs when the price and the quantity sold of a given good/service is stable

Question 5

The equilibrium price

Answer 5

Such that the quantity that consumers
want today is the same as the quantity that suppliers want to
sell

Question 6

Marginal benefit

Answer 6

The marginal benefit of producing a unit of a given

good/service is the extra benefit accrued by producing that unit