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Economics 1.2.7
Economics- Edexcel 1.2.7
| Term | Definition |
|---|---|
| price mechanism | changes in market price act as a signal about how scarce resources should be allocated |
| Adam Smith’s invisible hand | the ‘invisible hand’ of the price mechanism operates through the pursuit of self-interest, allocating resources in society’s best interest |
| the 3 main functions of the price mechanism | signalling, incentive and rationing |
| signalling function | they adjust to demonstrate where resources are required |
| incentive function | financial motivations for people to take certain actions |
| rationing function | prices serve to ration scarce resources when market demand outstrips supply |
| centralised | an economy in which business activities and the allocation of resources are determined by government order rather than market forces |
| decentralised | a type of economic system in which decision-making is distributed amongst various economic agents or localized within production agents |
| market failure | occurs when signalling and incentive functions fail to operate optimally leading to a loss of economic and social welfare |
| example of market failure | when a monopolist seller sets high rates to the products leaving no choice for the buyers other than to purchase the overpriced goods |
| secondary markets | occur when buyers and sellers are prepared to use an alternative market to re-sell items that have already been purchased |
| example of a secondary market | in tickets for big concerts, festivals and major sporting events |
| government intervention | any action carried out by the government that affects the market with the objective of changing the free market equilibrium / outcome |
| examples of government intervention | changes in relative prices brought about by subsidies and indirect taxation or imposing maximum and minimum prices |
| law of unintended consequences | actions of people, especially of government, always have effects that are unanticipated or unintended |
| shift in the demand curve | causes an expansion along the supply curve |
| asking price | minimum price at which a security commodity or currency is offered for sale on a market |
| black market | an illegal market in which the market price is higher than a legally imposed price ceiling |
| excess demand | difference between the quantity supplied and the higher quantity demanded when the price is set below the equilibrium price |
| excess supply | when there are unsold goods at the current market price |
| inventories | unsold products(finished and unfinished) and the raw materials used to make them |
| market incentives | signals that motivate actors to change their behaviour, perhaps in the direction of greater efficiency or profit |
| economic actors | the participants in economic activities in an economy, grouped into three categories: individuals/households, firms, and the government |
| utility | a measure of the satisfaction that we get from purchasing and consuming a good or service |
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jessharris
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