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Competitive Markets (Role of prices (Answers central 3 qns (what to…
Competitive Markets
Role of prices
Signalling
indicates where FOP is most needed
conveys information to decision makers (C&P)
Incentive
encourages FOP to move into growing industries
motivate decision makers to respond to information
Rationing
ensures right amount of resources is allocated to production of a good
Answers central 3 qns
what to produce
how to produce
how much and for whom to produce
Demand
Determinants
Price of product
Changes in income
Changes in price of related goods
Substitutes
Complements
Changes in taste & preference
Changes in consumer expectations
Government legislation
Changes in weather/season
Changes in pop size / demographics
Supply
Determinants
Price of product
Changes in price of related goods
Goods in competitive supply (maize/wheat)
Goods in joint supply
Changes in CoP
Changes in state of technology
Changes in no of sellers
Changes from nature (supply shocks)