The role of markets and money

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Market

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19 Terms

1

Market

Any arrangement allowing buyers and sellers to exchange goods, services, or resources, varying from physical to virtual platforms, with essential features like participants, products, price mechanism, and competition.

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2

Primary Sector

Involves extracting natural resources like agriculture, mining, fishing, and forestry, producing raw materials such as crops, minerals, fish, and timber.

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3

Tertiary Sector

Provides services like retail, healthcare, education, and financial services, offering intangible activities such as teaching, medical treatment, and financial advice.

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4

Factor Markets

Where factors of production (land, labor, capital, entrepreneurship) are bought and sold, like labor market for workers and capital market for financial assets.

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5

Demand

Quantity of a good or service consumers are willing and able to purchase at various prices, influenced by factors like income, preferences, prices of related goods, expectations, and number of buyers.

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6

Supply

Quantity of a good or service producers are willing and able to offer for sale at various prices, determined by production costs, technology, prices of related goods, expectations, and number of sellers.

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7

Price

Monetary value reflecting the worth of a good or service, determined by production costs, demand, and competition, playing a role in resource distribution and market equilibrium.

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8

Equilibrium Price

Price where quantity demanded equals quantity supplied, ensuring no surplus or shortage, with equilibrium quantity being the amount bought and sold at that price.

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9

Competition

Rivalry among producers in a market economy to attract consumers by offering better products, services, or prices, driving innovation, quality improvement, and price control.

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10

Improve Efficiency

Competition drives firms to reduce costs and enhance production efficiency to remain competitive.

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11

Innovate

Firms invest in research and development to create new products or enhance existing ones to differentiate themselves.

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12

Price Reduction

Competitive markets often lead firms to lower prices to attract customers, resulting in price wars and benefiting consumers with lower prices.

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13

Price Stabilization

Competition can stabilize prices as firms may reach a point where further price cuts are unsustainable, leading them to compete on other factors like quality or service.

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14

Price Discrimination

Firms may use price discrimination strategies, charging different prices to various consumer segments based on their willingness to pay to maximize profits.

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15

Impact on Producers

Competition encourages efficiency, innovation, and may lead to market share changes or exits for firms unable to compete effectively.

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16

Impact on Consumers

Competitive markets offer lower prices, better quality products, and a wider range of choices for consumers.

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17

Monopoly

A market structure where a single firm dominates, controlling the supply with no close substitutes, leading to higher prices and less innovation.

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18

Oligopoly

Market dominated by a few large firms with interdependent decision-making, potential collusion, and higher prices than competitive markets but lower than monopolies.

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19

Competitive Markets

Many buyers and sellers with no firm controlling prices, characterized by low barriers to entry, price takers, and high competition leading to lower prices, higher quality, and innovation.

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