Please enable JavaScript.
Coggle requires JavaScript to display documents.
Market Mechanism - Coggle Diagram
Market Mechanism
-
Types of Goods
Public Good -
Goods that are missing from a free market, but offer benefits to society. They are non-excludable and non-rival
-
Non-Excludable -
If someone consumes a good, it does not stop someone else consuming it
Non-Rival -
The benefit from someone consuming a good does not diminish if more people consume the good
-
Functions of Price
Signalling -
price acts as a signal form consumers and new firms entering a market, e.g a higher price signals new firms to enter the market but consumers to reduce demand
Rationing -
when there are scarce resources, price increases due to the excess of demand, e.g plane tickets rise in price as more are sold
Incentive -
encourages a change in behaviour of a consumer or producer, e.g a higher price encourages firms tro suuply more
Advantages -
- impersonal method of allocating resources
- gives consumer sovereignty as they decide what is bought and sold
- free market allows efficient allocation of resources
Disadvantages -
- may be income and wealth inequality
- under provision of merit and public goods