What is a price mechanism? [2]
- An economic model
- Helps to explain the allocation of resources between different possible uses
What does the price mechanism show?
- How the invisible hand guides resources towards production of what consumers will buy
What does the allocation of resources reflect? [3]
- Decisions people take about what to buy
- What to produce
- How to best use the available land, labour and capital
Explain customer sovereignty [2]
- The desires and needs of consumers control the output of producers
- Plays an important role in markets
Explain consumer sovereignty [2]
- The desires and needs of consumers control the output of producers
- Plays an important role in markets
List the functions of the price mechanism [3]
- Signalling — prices give signals to producers and consumers
- Rationalling — only those willing and able to pay the price get products/ resources
- Incentives — Profitability motivates firms; value for money motivates consumers
List the strengths of the price mechanism [2]
- It works automatically, following decisions taken by a multitude of economic agents
- It can direct resources to the uses the are valued the most
What do economic models depend on? [2]
- Reasonable assumptions
- These are not always realistic
Give an example of assumptions that aren’t always accurate [2]
- Competition = cost efficiency or low prices
- Consumers make rational and logical choices lmao
What doesn’t the price mechanism reference? [2]
- Income distribution
- Spending decisions will mainly be determined by the very rich
Explain homogenous products [2]
- Products are uniform, whatever their origin
- Products like wheat, corn, milk and gold
Explain differentiated products [2]
- Products are distinctive; different design features and/or branding
- Products like cars, smartphones and drinks
What products will often be homogenous or standardised?
Products that are used by most people and sold in large quantities
What does large scale production allow?
Allows firms to keep production cost low (per unit)
Explain niche markets [6] [sorry there’s so many :( ]
- These are smaller and work different;y
- Specialised segments of a large market
- Separated by particular needs or preferences
- For example, organic food or goth clothes
- May find it difficult competing against large scale producers
- Therefore need to meet the needs of their niche customers closely
Explain oligopoly [3]
- A market structure with a few large firms dominating the market
- Often smaller firms competing as well
- Oligopolists are present in many markets
How do firms acquire market power [2]
- When they differentiate the product
- When they control the amount produced/ price charged
What isn’t static? Why?
- Markets
- Economies
- Some will grow/shrink
What is often involved in changes to a market?
Changing technology
