Chapter 2 Flashcards
(16 cards)
What is a market?
a market is an opportunity for buyers and sellers to meet and determine the price of a good or service.
The functions of price
Rationing
Signalling
Incentive
Rationing (function of price)
it allows some people to afford the product/services but prevents others from being able to make the purchase. This will depend on the individual’s relative wealth and the value of that product compared to others (i.e. the opportunity cost of what must be given up).
Signalling (function of price)
the price signals something about the good/service that is important to potential buyers. A price rise may signal an increase in the cost of production.
Incentive (function of price)
the price of a good or service can act as an incentive for a supplier to provide it. As prices rise, the supplier may make more profits and therefore receive a greater reward for investing in the supply of the product or service.
Factor market
this is a market for factors of production (land, labour, capital and enterprise).
Product market
this is a market concentrating on the sale of the final product or service.
The difference between a product and a service
Products are physical objects or products that have been farmed, mined or created by a production process.
Products can be transferred and delivered from buyer to seller.
A service cannot be weighed or measured. A service is an activity of performing work for customers. At the end of the interaction, the service should provide satisfaction of the wants of the customer.
At the end of a transaction the ownership of the product passes from the seller to the buyer. At the end of the process, the ownership of the service remains with its provider.
After transaction, a product can be returned or exchanged. Services, however, cannot be returned.
primary
this is any part of the economy that is involved with acquiring the land economic resources (agriculture or mining)
Secondary
this is any part of the economy that is involved with the manufacturing or assembly of products. The UK manufactures cars, aeroplanes and pharmaceuticals.
Tertiary
this is any part of the economy that is involved in the provision of services that support the primary and secondary sectors. In the UK, we are successful at financial services such as banking and insurance. Many people work in the retailing sector (the selling of produce).
Specialization
Specialisation is the concept of how an economy will start to concentrate on the production of goods or provide services at which it is the most efficient. It will start to reduce the production of goods or provision of services where it is less efficient.
What are the possible gains from specialisation?
Higher output: Total production of goods and services is raised and quality can be improved
Variety: Consumers have access to a greater variety of higher quality products
Lower prices: Increased competition acts as an incentive to minimise costs and keep prices down.
division of labour
a firm may separate its workforce so that many separate tasks are undertaken by specific individuals
Advantages of division of labour
An individual worker becomes more competent at a task that they repeat many times. Their output should therefore increase.
This increase in productivity per worker reduces the overall production cost per unit.
The employer is more able to afford specific training for individuals as their output will increase and justify that investment.
Workers can repeatedly use a single tool, making it more cost effective for a firm to purchase that tool. This may reduce the cost of production or increase productivity for that worker.
Disadvantages of division of labour:
When an individual repeats tasks many times, they may start to become bored with the job they are doing. This may lead to lower levels of morale which, in turn can lead to lower levels of output and quality of production.
If a job becomes more boring, an individual is more likely to look for another job. This can lead to high levels of staff turnover (the rate at which employees leave a workplace).
An increase in mass-produced standardised goods may reduce choice for consumers.
