Flashcards
6 ~ Market Mechanism
Cards in this deck (21)
- 1What is composite D?where goods or services have more than one use so that ↑D for one product leads to ↓S of the other
- 2Give an example of composite Dmilk can be used for cheese, yoghurt, cream, butter and more
- 3What is joint S?where an ↑S or ↓S of one good = ↑S or ↓S of another
- 4Give an example of joint S↑S of beef = ↑S of beef hides
- 5What is the invisible hand?a concept by Adam Smith in which the free-market operates through the pursuit of self-interest allocated resources in society's best interests
- 6What does the price mechanism describe?the means by which millions of decisions taken by consumers and businesses determine the allocation of scarce resources between competing uses
- 7Which 3 important functions does the price mechanism play?signalling function
transmission of preferences
rationing function - 8What is the signalling function?where prices adjust to demonstrate where scarce resources are required
- 9Give an example of signalling functionif ↑D = ↑P which signals to consumers to ↑S
- 10What is the transmission of preferences?where consumers send info to producers through their choices
- 11Give an example of the transmission of preferences↑P = an incentive to ↑S because suppliers can make a greater profit
- 12What is the rationing function?where prices serve to ration scarce resources when D>S
- 13How does the rationing function work?when there is a shortage of S = ↑P, leaving only those with the willingness and ability to purchase
- 14What is information failure?when producers and consumers have inaccurate, incomplete or misunderstood information
- 15What can information failure cause people to do?make irrational decisions
- 16What are causes of information failure? (5)misunderstanding costs/benefits
complex info
inaccurate or misleading info
addiction
lack of awareness - 17What is moral hazard?a type of asymmetric info
- 18When does moral hazard occur?when insured consumers are likely to take greater risks, knowing that a claim will be paid for their cover
- 19How does moral hazard involve asymmetric info?the consumer knows more about their intended actions than the producer
- 20What is adverse selection?a type of asymmetric info
- 21How does adverse selection work?e.g. the type of people most likely to buy health insurance are those who know they will need it
if the insurance company knows this they will ↑average Ps
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- AS - Level Economics (Microeconomics) Flashcards on 6 ~ Market Mechanism, created by Tara Pugal on 24/04/2016.
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- Tara Pugal
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