Chapter 2

• Market


  Opportunity for buyers & sellers to meet and determine the price of a good or service
• Functions of price


  • Rationing
  • Signaling
  • Incentive
• Product are physical objects
• Factor market


  Market for factors of production
• Product market


  Market concentrating on the sale of the final product or service
• Service


  Activity of performing work for customers
• Primary sector


  Part of the economy involved with acquiring economic resources (e.g. coal mined, oil extracted)
• Secondary sector


  Part of the economy involved with manufacturing or assembling
• Tertiary sector


  Provision of services that support the primary and secondary sectors
• Specialisation


  Concept of how an economy will start to concentrate on the production of goods or provision of services at which it is the most effective
• Gains from specialisation


  • Higher output
  • Variety
  • Lower prices
• Division of labour


  A firm may separate its workforce so that many separate tasks are undertaken by specific individuals
• Advantages of divisions of labour

  • Increase in productivity per worker
  • Individual workers become more competent at a task that they repeat many times
• Disadvantages of divisions of labour

  • Individual workers may get bored
  • High levels of staff turnover
• Exchange


  • Specialisation and would only be valuable if for improving efficiency
  • There must be exchange
• Exchange


  • If the UK specialises in apples production it would benefit from a system where it can exchange some of these apples for bananas or other foodstuffs it has not produced