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Chapter 2.1 - The Role of Markets (What is a Market? (A shop where the…
Chapter 2.1 - The Role of Markets
What is a Market?
A shop where the sellers is the shop owner, or the sales assistant and the buyer is the customer
An auction where the selling price is determined by how many buyers there are and what they are prepared to pay
A physical market with many stall holders (sellers) and buyers as is found in towns and cities or farmers markets
Through the internet or over the telephone, or through catalogs sent through the post
A market is a way of bringing together buyers and sellers to buy and sell goods and services. This market could be:
Sectors
Secondary
Organisations that are involved in turning raw materials into finished goods.
Examples:
Energy production
Oil refining
Tertiary
Organisations that are involved with goods and services and selling them to consumers.
Examples:
Tourism
Transportation
Education
Primary
Organisations that are involved with producing or extracting raw materials.
Examples:
Farming
Quarrying
Subsistence Economy vs Specialisation
Subsistence Economy
- where each household produces all necessary goods by themselves
Specialisation
- When individuals, firms, regions and economies concentrate on producing products they are best at.
Product vs Factor Market
Factor Market - Market in which the services of the factors of production are bought and sold
Product Market - Market in which final goods and services are offered to consumers, businesses and the public sector
Evaluating Specialisation
Producers
Advantages
Higher productivity
If all producers specialise in one task, they become very skilled
Output per worker per hour increases
Bigger market
If all producers specialise then for each product there will be more buyers for each producer
Higher quality
Workers become skilled and firms can buy components of their products from other firms who specialise
Workers can produce better products and components are of higher quality
Higher output
In some areas it is possible to use automated or specialist equipment
Total production of goods and services will be increased
Time saving
Workers don't need to stop between production of different products
This saves time and money
Economies of scale
As firms specialise they can produce more and grow in size
As they grow in size they can save on costs of production in various ways
Disadvantages
Dependency
Problems such as technical failure and strike can lead to the whole process stopping
Production of goods and services depends on all part working well
Failure of exchange
Producers may not be able to provide products to the markets
It may become impossible to buy scarce resources or supplier may greatly increase prices
Costs may rise at high output
Firms may lose time and quality and pay more for resources
Very high output and factory size could make it difficult to organise workers and resources may become scarce
Movement of workers
Workers may become bored and leave
New workers have to be recruited and drained
Regions
Advantages
Creates jobs for regions
The development of an industry in a particular region helps the residents of that area
Residents can find work close to their home
Efficient use of resources
It will be easier to use that resources efficently
A region could specialise in a particular industry due to availability of resources
Infrastructure development
A region that specialises in a particular industry will develop both infrastructure and supply industries to support that industry
This will lead to further regional development
Disadvantages
Risk of fall in demand
There might be a resource wastage
If demand falls due to changes in taste and fashion then the industry will collapse or shrink
Resource exhaustion
If the raw materials are no longer available,then those employed in the industry will become unemployed
Unemployment rates may go up in that area
Loss of advantage
Another region or country may become better at producing the good
There will be a resource wastage and more unemployment
Workers
Advantages
Natural strengths
Can result in them earning more money
Workers are able to do what they are best at and don't have to do work they're not so good at
Increasing job satisfaction
Allowing workers to do what they're good at is likely to improve their motivation and satisfaction
Increased skill
Can result in them earning more money
Workers become more skillful in and knowledgeable about their work
Increased standard of living
As workers become skilled and motivated, they will earn more
Workers can then buy more goods and services to satisfy their needs and wants
Disadvantages
Boredom
Workers may become unmotivated
Doing the same job every day may become boring
Deskilling
They are less able to respond to changes in requirements
Workers lose the skills to do other types of work
Unemployment
Fall in demand for a particular product or machines replacing labour may make workers redundant
Workers may find it difficult to get another job because they don't have the necessary experience
Countries
Advantages
More jobs
Increasing production may result in more workers required
In some cases these jobs require skill workers, leading to higher incomes
International trades
If a country specialises it will no longer produce some goods that are wanted and will have a surplus of products they make
This leads to international trade and greater choice of goods and services for its people
Improved standard of living
There will be increased choice, income, output and infrastructure
This leads to better quality of life for most people
Government revenue
This can lead to improved living standards as more or better schools, hospitals, etc. are provided
Government will take in more taxes from production and consumption of goods and services
Economies of scale and efficiency
Countries will produce larger quantities of the products they are specialising in, making each unit cheaper to produce
This will make the products more affordable and attractive to other countries
Disadvantages
Unemployment
As specialisation changes workers may lack necessary skills
Workers in declaring industry may not be able to find new jobs
Over-dependence
Countries can over-specialise and become dependent on one product or a very small number of products
If world demand changes then these industries and the country's economy may collapse
Over-exploitation
Output may be increased by over-exploiting natural resources
This can lead to disappearing of some resources
Negative Externalities
Over-Exploitation of resources and/or production can lead to serious environmental damage
This can lead to serious health problems and natural disasters