13. What role do prices play in a market economy?
Prices play an important role in all economic markets. If there were no price system, it would be impossible to determine a value for any goods or services. In a market economy prices act as signals
14. What two important economic functions do prices perform?
Prices perform two important economic functions: they ration scarce resources, and they motivate production..
15. What characteristics do prices have in a market economy?
16\ Why do buyers and sellers have the opposite intentions and hopes?
17. When does the adjustment process take place?
In economic markets, buyers and sellers have exactly the opposite hopes and intentions. The buyers come to the market larger to pay low prices. The sellers come to the market hoping for high prices. For this reason, adjustment process must take place when the two sides come together. This process almost always leads to market equilibrium4 — a situation where prices are relatively stable and there is neither a surplus5 nor a shortage6 in the market.
18. What is market equilibrium?
It is the point at which quantity demanded and quantity supplied are equal
19. What messages do price increases and decreases send to producers of goods and services?
Price increases and decreases also send messages to suppliers and potential suppliers of goods and services.
As prices rise, the increase serves to attract additional producers. Similarly, price decreases drive producers out3 of the market. In this way prices encourage producers to increase or decrease their level of output4. Economists refer to this as the production-motivating function of prices.
MARKETS AND MARKET STRUCTURES
What is a market? ---- Market: any mechanism that enables buyers and sellers to make bargains.
What do economists mean by the market structure? ---- The conditions under which competition exists in a market refer to a market structure.
What are the principal types of market structures? ---- The principal kinds of market structures are perfect competition, monopolistic competition, monopoly and oligopoly.
What is perfect competition? ---- Perfect competition (pure competition): a market for uniform products in which there are many buyers and sellers, no one of which is big enough to affect a price, and has full knowledge of market condition.
What are the key characteristics of perfect competition? ---- Perfect competition has the key characteristics sach as: - a large number of buyers and sellers all engaged in the purchase and sale of exactly the same commodity; - identical commodity offered for sale; - each buyer or seller has perfect knowlege of market prices and quantities; - there are no barriers to entry or exit.
What is monopolistic competition? ---- Monopolistic competition: a state of competition in a market in which many firms compete, producing similar but slightly differentiated products.
What are the key characteristics of monopolistic competition? ---- Monopolistic competition the key characteristics sach as: - a large number of firms producing similar but not identical product; - product differentiation; - a relatively easy entry to the market.
What is product differentiation? ---- Product differentiation is a process of creating uniqueness in a product.
What is oligopoly? ----- Oligopoly is a term applied to markets dominated by a few large firms.
What are the key characteristics of oligopoly? ----- Oligopoly has characteristics sach as: - Oligopoliies exist because it is difficult for competing firms to enter the market. - Price competition is less effective where there is oligopoly. - Oligopolies often look to price ledership, collution and custom to determine their pricing politicies.
What is monopoly? Why does monopoly exist? ---- Monopoly is a market in which there is only one seller. A monopoly exist because: (потрібно вибрати щось одне) a) barriers to entry b) the large number of buyers and sellers c) the absence of barriers to entry d) collusion among the dominant firms e) the absence of exclusive government franchises
What is imperfect competition? ---- Imperfect competition is a market in which there is neither pure perfect competition nor pure monopoly.
How does imperfect competition differ from perfect competition and monopoly? ---Imperfect competition describes markets in which sellers have more than they have under perfect competition, but less than they have under monopoly.
Money^ What is money? ---money is anything that is generally accepted in payment for goods and services, and debts and makes the trading process simpler and more efficient.
What money are people most familiar with? ---Nowadays the money people are most familiar with is currency that people use almost daily.
What is currency? ---Currency is legal tender. Currency: Paper money and coins issued by the federal government.
What characteristics does money have? ---modern money should have the following characteristics: Stability. Portability Durability. Uniformity. Divisibility. Recognizability.
What is stability of money? ----Stability. The value of money should be more or less the same today as tomorrow.
What is portability of money? -----Portability. Modern money has to be small enough and light enough for people to carry.
What is durability? -----Durability. Money has to have a reasonable life expectancy.
What does uniformity relate to? ---Uniformity. Equal denominations of money should have the same value.
What is recognizability? ----Recognizability. Money should be easily recognized for what it is and hard to copy.
How does money function? -----medium of exchange a measure of value store of value inflation deflation
What is money as a Medium of exchange? ----When money is used as a medium of exchange, it distinguishes from other assets. Money enables exchanges to be made easily. In a money economy people can sell what they have to anyone and use the money to buy what they want.
How does money perform a function of a Measure of value? -----When performing a function of a measure of value money is used as a common denominator of value for pricing goods and services
What does money mean as a Store of value? ----Money as a store of value enables people to use the value of something that they sell today to make a purchase sometime in the future.
What does the purchasing power of money mean? ----purchasing power means the amount of goods and services people can buy with their money.
Why and when does the value of money change? ---- When prices increase, money cannot buy as much. Its purchasing power declines.
TAXATION
What are the main purposes of collecting taxes? ---The principal purpose of taxes is to pay for the cost of government.
What is a tax? ---Tax: money compulsory levied by government on individuals, property, businesses.
What types of taxes do governments impose? ---Government impose many types of taxes. In most democracies, individuals pay income taxes, consumption taxes, sales taxes, value-added taxes, property taxes.
What are income and property taxes? ---Income tax is a tax on the income earned by individuals and corporations. Property tax is a tax that based on the value of property owned by the taxpayer.
What are sales and value-added taxes? ---Sales tax is a regressive tax added to the price of goods and services at the time they are sold. Value-added tax is a tax levied on the value added to goods at every stage of production.
What excites considerable controversy when it comes to taxation? ---The question of which taxes and in what amounts can lead to considerable disagreement.
What are the principles of taxation? ---Most economists believe that a tax system should following two main principles: the ability-to-pay principle and the benefits-received principle.
What does the benefits-received principle state? ---The benefits-received principle of taxation states that those who benefit from a government program are the ones who ought to pay for it.
What does the ability-to-pay principle mean? ---The ability-to-pay principle of taxation states that taxes ought to be paid by those who can best afford them, regardless of the benefits they receive. It means that taxes should be based on taxpayers’ ability to pay that is measured by their income or wealth.
How can most taxes be classified? Define them.
---Most taxes can be classified as proportional, progressive, or regressive. A proportional tax takes the same percentage of all incomes regardless of size. A progressive tax takes a larger percentage of a higher income and a smaller percentage of a lower income - rich people not only pay a larger amount of money than poor people, but a larger fraction of their incomes. A regressive tax takes a lower percentage of income as income rises - poor people pay a larger share of their incomes in taxes than rich people.
Why do sales taxes and value-added taxes have a regressive effect? ---They have a regressive effect because they take a larger share of earnings from a low-income taxpayer than from a high-income taxpayer.
What is an incidence of the tax? ---The way a tax affects people is called the tax incidence.
BUSINESS ORGANIZATIONS
What are three different ways that a business can be privately owned? --- There are essentially three basic ways to set up a privately owned enterprice: a sole proprietorship, a partnership and a corporation.
What is a sole proprietorship? ---- A sole proprietorship is an unincorporated business that is owned and operate by one person.
What are the advantages of a sole proprietorship? ---- Is the least costry and easiest form of business organization to launch and operate.Is a business in which the owner is fully and personally responsible for all the obligations of the enterprice.Sole proprietor is free to make any business decision.There is preferential tax treatment
What are the disadvantages of a sole proprietorship? ---- A business owner is personally responsible for the company`s debts. Limited resources refer to the owner`s personal financial resources and his or her ability to borrow.A sole proprietorship ends with a sole proprietor`s death
What does unlimited liability mean? ---- Unlimited leability being the major disadvantage of a sole proprietorship means that a sole proprietor assumes the burgen of any losses or leabilities the enterprice faces.
What is a partnership? ---- A partneship is an asoociation of two or more persons, who act as co-owners of an unincorporated business and operate it for profit.
What are the advantages of a partnership? ---- A partnership is relatively easy and enexpensive to establish. There are more possibilities in raising funds because the borrowing power of who or more partners is greater.Each partner can benefit a partnership by his/her knowledge, Skills or ideas and specializes in certain activities of the business. Like a sole proprietorship are subject to special tax treatment.
What are the disadvantages of a partnership? ---- A pertnership has unlimited leability,and if it is unable to meet its financial obligation,partners have to use their personal assets to pay off all the business`s debts.Profit sharing can excite controversy.Disagreement between the partners,may cause management conflicts. The partnership is terminated because of the withdrawal or death of a partner.
What is a corporation? ---- Corporation is a business that is authorized by law as a separate legal entity with its own powers,responsibilities,and obligations.
Who owns and manages a corporation? ---- The corporate owners are know as shareholders or stockholders.
What are the advantages of a corporation? ---- Shareholders are not leable for the debts of a company they own shares in.Being a separate legal entity,the corporation actually owns and operates the business for the shareholders,but under their total control.Shares of ownership are transferable.Corporation has unlimited life.It is much easier for a corporation to increase capital to manage and expand its operation.
What is limited liability? ---- Shareholders are not leable for the debts of a company they own shares in. If a business fails shareholders can lose no more than he or she has paid for the shares of stock but their personal assets are safe from the creditors of the business.
What are the disadvantages of a corporation? ---- A corporation is difficult and expensive to create and organize. Corporation is subject to double taxation.
What does the process of creating a corporation require? ---- The process requires higher start capital and the services of a lawyer to obtain a goverment charter.
What are dividends? --- A dividend is money paid directly to an investor or company's stock.