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Section 2 Economic studies 2.1, 2.2, the role of markets in allocating…
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2.2, the role of markets in allocating resources.
The market system
A market system works to allocate scarce resources efficiently through the forces of supply and demand.
Consists of sellers aka producers that are willing and able to sell at a given price and buys aka consumers whom those are willing and able to buy.
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Market equilibrium is where at a given market price, demand and supply of goods and services are equal to one another. No excess surplus of supply or no excess demand aka shortage, everything produced is consumed at a given equilibrium price.
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Price mechanism
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It helps producers and consumers to decide what to produce and how to allocate their scarce resources between different products.
The price mechanism is a system of economic decisions taken by businesses and consumers to allocate scarce resources efficiently in the market for different uses.
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2.3 Demand
Demand means the ability and willingness of an individual consumer to buy goods and services at a given price.
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