chapter 5- role of markets in allocating resources
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9 Terms
what is a market
a system where buyers and sellers interact to exchange goods and services
what determines prices in a market
demand and supply
what is a price mechanism
the way prices are determined by demand and supply to allocate resources
what happens when demand for a product rises
prices tend to rise
why does a high price encourage producers
it can increase potential profit
what happens when a product is scare
prices tend to rise, limited supply
how do markets allocate resources
resources move towards goods and services with higher demand/profit opportunities
how can competition benefit consumers
competition can lead to lower prices, better quality and more choices
what is market failure
when market fails to allocate resources efficiently