2281 · 2.1
The market system flashcards
Revision flashcards for Cambridge 2281 The market system (syllabus 2.1). Flip, recall, then mark a real past-paper question.
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What is a market?
Any arrangement that brings buyers and sellers of a product together so that they can trade.
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What is the price mechanism?
The way changes in price allocate resources between competing uses without central planning.
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What is the signalling function of price?
Price changes tell producers and consumers what has become more or less scarce.
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What is the incentive function of price?
Higher prices raise profits and encourage producers to supply more; lower prices do the opposite.
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What is the rationing function of price?
When supply is limited, price rises so that the good goes to the buyers willing and able to pay.
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What is microeconomics?
The study of individual markets and decision makers — households, workers and firms.
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What is macroeconomics?
The study of the economy as a whole — output, inflation, unemployment, trade and government policy.
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What are the three basic economic questions?
What to produce, how to produce it, and for whom to produce it.
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What is a market economy?
An economic system in which privately owned firms and individuals decide what to produce, guided by prices and profit.
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What is a planned economy?
An economic system in which the government owns most resources and central planners decide what to produce.