markets Flashcards
(29 cards)
what is a market
this is a place where buyers and sellers come together to exchange goods and services for a price
why do markets exist (4)
- goods e.g. cars
- services e.g. bus travel
- recourses e.g. labour
- money e.g. credit
features of a free market (3)
- no barriers for firms to compete with each other
- the price is set in the market by the total demand and supply. firms are price takers not price makers
- no government interventions
Equilibrium price (4)
- occurs when demand and supply curve cross
- quantity demanded by consumers is the same quality supplied by suppliers
- the market is cleared: no surplus or shortages
- price will not change unless their is a change in demand or supply conditions
why do governments intervene
to alter the price or the quantity exchanged
methods governments use to intervene (5)
- setting minimum price
- setting minimum price
- imposing tax
- giving subsidies
- setting a quota
why would governments set minimum pricing (2)
- they may feel the equilibrium price is too low however this can cause s surplus
- setting a minimum price for farm products to the EU to ensure farmers received a decent income. farmers created more crops due to higher prices thus causing surplus
problems with minimum pricing (3)
- higher prices for consumers
- development of black markets
- over-supply leading to allocative inefficiency
why would a government set a maximum price (2)
- feel equilibrium is too high
- they do this to help low income consumers as part of anti inflation strategies
imposing tax effects on markets
increases cost of production which reduces production and increases price for products
imposting subsidies effects on markets
encourage supply and keeps prices low
effects of quotas on markets
sets a quantity amount that can be supplied
compare perfect competition with a monopoly (8)
many sellers - few sellers
no barriers to entry - high barriers to entry
price takers - price makers
no economies of scale - large economies of scale
same price in every part of the market - price discrimination
elastic demand curve - inelastic demand curve
homogenous products - differentiated product
normal profit in long run - abnormal profit in long run
what are barriers to entry
high barriers to entry prevent potential competitors from coming into the industry
what are market barriers
high spending on marketing can have created a brand image and loyally which new firms willi find hard to overcome
what are legal barriers
certain laws, patents or copyright can prevent new entrants from entering a industry
what is restrictive trade practice
ways existing business can try to reduce competition through refusing to buy from suppliers who sell to rival or using destroyer pricing
what are entry costs
costs needed to set up in an industry which can be high for new businesses
what are sunk costs
costs that cannot be recovered if a business fails and includes research and development and advertisement
Reasons some firms are naturally monopolies (natural barriers) (4)
- control of supply: firm owns all of supply of raw materials
- economies of scale: hard for new firms to beak in and compete
- expense: some industries require money and most firms cannot afford this
- legal consideration: some firms can be monopolies as laws have made it illegal for other firms to set up
what are artificial barriers
monopolies achieve their powerful position by creating their own artificial barriers to competition
examples of artificial barriers (2)
- marketing barriers: high spending on advertisement and marketing
- restrictive trade barriers: used to restrict competition
advantages of monopolies (3)
- economies of scale
- research and development
- innovation
disadvantages of monopolies (7)
- output may be lower and price may be higher
- consumers may be exploited
- lack of consumer choice
- consumer satisfaction is likely to be low
- little incentive to innovate
- technical progress is reduced
- price discrimination
