ed excel i gcse economics chapter 1

7/30/2019 Ed Excel i Gcse Economics Chapter 1

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P A R T 1 C

h a p t e r 1 : T h e m a r k e t s y s t e m

DB C

A

Getting Started...

In any economy, people, businesses, foreigners and the government buy lots of goods and services, e.g.:

• people buy groceries, clothes and entertainment

• businesses buy components, machinery and energy

• foreigners buy goods from exporters

•

the government buys equipment for schools and medical supplies for hospitals.Goods and services are exchanged when buyers and sellers communicate with each other. Look at how goods are

exchanged in these images.

What is a market?

A market exists when buyers and sellers communicate and exchange goods or

money. Historically, markets were actual places where buyers and sellers met toexchange goods. These days, a market can exist without shops or malls. Buyers and

sellers can trade goods without coming ace to ace. Here are some examples o

some markets today and how they work.

Section A: The market system

PART 1 Demand and supply

Chapter 1: The market system

(a) What is the common activity in these images?

(b) How might prices be determined in B and D? Make a comparison.

(c) What word might you use to describe the locations shown in A–D?



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P A R T 1 C h a p t e r 1 : T h e m a r k e

t s y s t e m

● The second-hand car market. Second-hand cars may be sold by dealers rom

showrooms, car lots or a sales pitch. Buyers can view the cars, perhaps test drive

them and agree a price i they wish to buy. Second-hand cars may also be sold

privately, at auctions and even on the Internet.

● The housing market. In many countries houses are sold on behal o their

owners by estate agents. Buyers view properties, make an oer or the one they

want to buy, then hope their oer is accepted by the vendor (seller). I not, there

may be some negotiation beore a price is agreed or a sale will not take place.

Sometimes houses are sold privately or at an auction.

● The market for US dollars. US dollars are traded in world currency markets.

In these markets buyers and sellers may be linked by telephone or by computer.

Prices are agreed and details o transactions are exchanged. The value o

dollars traded will be moved electronically between the bank accounts o buyers

and sellers.

● The mortgage market. Mortgages are loans used to buy property. They

are usually oered by nancial institutions such as banks and building

societies. People who want a mortgage make a ormal, written application.

I the lender believes the applicant can repay the loan, a mortgage is granted.

The interest rate on the mortgage (the price charged or the loan) is not

usually negotiable.

Functions of a market system

In any country there many dierent markets, which together operate like a system.

This market system, sometimes called the price mechanism, perorms two

important unctions: price determination and resource allocation.

Price determination

The market system determines the prices paid or goods. In any market buyers and

sellers communicate with each other. One o the most important things they

discuss is the price to be paid or the goods. Sellers will oten want more than

buyers are prepared to pay. As a result there is likely to be some negotiation or

‘haggling’. Eventually, the buyer and seller might agree a price and the goods will

be traded. I not the goods will remain unsold.

Resource allocation

The market system can help to allocate a nation’s resources. This is because

resources such as raw materials, land, machines and workers (see chapter 16)

will fow into thriving markets and out o declining markets.

● In thriving markets prices rise. This means sellers probably make healthy prots.

These prots will attract more sellers, so more resources are needed to make

these ‘popular’ goods.

● In declining markets prices all. This results in sellers leaving the market and the

release o the resources that they would have used.

Did you know?Some markets have no price negotiation.

For example, in many shops goods have

price labels and buyers are expected to

pay the price displayed. However, i buyers

do not want to pay the price, they will go

without or buy elsewhere. Piles o unsold

goods send a signal to a seller. Either they

reduce the price or get stuck with the goods.

This shows that communication between

buyers and sellers is still taking place.

Did you know?In many Arab-speaking countries traders and

buyers come ace to ace in a market place

called a souk to exchange goods.

These days, markets don’t always need to be

an actual place. Trading can take place over

the telephone, using newspapers, through

mail order or on the Internet. These are

known as invisible markets.

ed excel i gcse economics chapter 1

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