chapter 6 - the roles of markets in allocating resources Flashcards
1
Q
definition of:
market system
A
method of allocating scarce resources through market forces of demand and supply
2
Q
definition of:
market equilibrium
A
when demand for a product equates the supply, hence there’s no shortages or surplus
3
Q
definition of:
market disequilibrium
A
if price is too high, it results in surplus and if price is too low, it results in shortages
4
Q
key decisions of resource allocation?
A
- what production should take place?
- for whom should the production take place?
- how should production take place?
5
Q
definition of:
price mechanism
A
system of relying on market forces of demand and supply to allocate resources
6
Q
key features of price mechanism
A
- allocation of factor resources based on financial incentive
- no government interference, firms have economic freedom
- goods and services allocated on basis of price
- competition creates choice and opportunities for firms, consumers have benefits
