2.1 The Role of Markets Flashcards
What is a market?
A way of bringing together buyers and sellers to buy and sell goods and services. This can be physical or virtual.
What is a market economy?
An economy in which scarce resources are allocated by the market forces of supply and demand.
What is the primary sector and what does it involve?
The direct use of natural resources including extraction of materials from the land and sea. For example, agriculture and fishing.
What is the secondary sector and what does it involve?
All activities in an economy concerned with manufacturing or construction. For example, building roads and houses.
What is the tertiary sector and what does it involve?
All activities in an economy that provide a service. These services can be provided to firms, individuals and governments. It can involve finance, education and entertainment.
What is the production of goods?
Involves using raw materials and/ or semi- finished goods to make a whole good. Commonly called manufacturing.
What is the production of services?
The process of providing a service to a consumer.
What is a factor market?
Where the services of production (CELL) are bought and sold. For example, the skills of labour.
The price of factors is decided by the interaction of supply and demand.
What is a product market?
Where final goods and services are offered to consumers, firms and the public sector.
Price is determined by the interaction of supply and demand.
How are factor and product markets interdependent?
The factor market is driven by demand (derived) from the product market. Households supply labour (factor of production) to firms. In turn, product market households are the main buyers of goods and services.
What is specialisation?
The process by which individuals, firms, regions and countries concentrate on producing the products that they are best at doing. For example, Bangladesh mainly produces textiles.
What does exchange mean?
The giving up of something an individual or firm has in return for something they wish to have, but don’t possess.
What are the benefits of specialisation for producers?
- Higher output and productivity (more skilled workers)
- Better quality products
- Economies of scale due to larger output
- More efficient
What are the costs of specialisation for producers?
- Diseconomies of scale
- Dependency = if one process fails, system may stop
- Failure of exchange
- Movement of workers because they become bored
What is division of labour?
Dividing production into different stages to increase efficiency (worker specialisation).
