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MARKETS AND MARKET STRUCTURES1.What is a market? Market is any arrangement people have for trading with one another. 2.What do economists mean by the market structure? The market structure is defined in terms of the number and the power of the buyers and sellers, the nature of the product (product differentiation), barriers to entry and exit, and availability of information. 3.What are the principal types of market structures? The principal kinds of market structures are perfect competition, monopolistic competition, oligopoly, and monopoly 4.What is perfect competition? A market for uniform products in which there many buyers and sellers, no one of which is big enough to affect the price, and has full knowledge of market conditions. 5.What are the key characteristics of perfect competition? To the economists a perfectly competitive market requires all of the following conditions: 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 knowledge of market prices and quantities. There are no barriers to entry or exit. 6.What is monopolistic competition? Economists describe a market with many sellers providing similar but not identical products as monopolistic competition. 7.What are the key characteristics of monopolistic competition? So, monopolistic competition is characterized by: a large number of firms producing similar but not identical products; product differentiation; some restrictions of information about market prices and quantities of goods; a relatively easy entry to the market. 8.What is product differentiation? The process of creating uniqueness in products is known as product differentiation. 9.What is oligopoly? Oligopoly is a term applied to markets dominated by a few (roughly three to five) large firms, each with substantial market control. 10.What are the key characteristics of oligopoly? The high cost of entry is one reason why some industries remain in the hands of a few sellers. Competing firms cannot enter some industries unless they pay the patent holders for permission to use the process or find a new method of production not protected by existing patents. Price competition is less effective where there is oligopoly 11.What is monopoly? Why does monopoly exist? A monopoly is defined as a single firm producing unique products for which there are no close substitutes. 12.What is imperfect competition? Imperfect competition describes markets in which sellers have more freedom to determine prices than they have under perfect competition, but less than they have under monopoly. 13.How does imperfect competition differ from perfect competition and monopoly? Both perfect competition, with its many buyers and sellers, all of whom have perfect knowledge of market conditions, and perfect monopoly, with buyers, who unable to find substitutes and pay the monopolist’s price rarely occur/take place. In reality, most of the nation’s economic activity occurs under conditions of imperfect competition. This market structure consists of industries and markets that fall in between two extremes of perfect competition and pure mono poly. MONEY 1. 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. 2. What money are people most familiar with? At different periods of time and in different parts of the world a variety, of commodities served as money. These commodities were: cattle, sheep, furs, leather, fish, tobacco, tea, salt, etc. Nowadays the money people are most familiar with is currency that people use almost daily. 3. What is currency? Currency is legal tender. This means the law requires that it must be accepted in settlement of debts. Currency refers to all coins and paper money issued by the central bank of a nation and held by the public within a country. 4. What characteristics does money have? Although anything can serve as money, modern money should have the following characteristics: stability, portability, durability, uniformity, divisibility, recognizability. 5. What is stability of money? The value of money should be more or less the same today as tomorrow. In societies where the value of money fluctuates people will store it in the hope its value will increase, or spend it immediately thinking it will be worth less tomorrow. 6. What is portability of money? Modern money has to be small enough and light enough for people to carry. It especially relates to checkbooks. Check can be written in almost any amount. 7. What is durability? Money has to have a reasonable life expectancy. So, durability means that modern money is made of a very high quality material that makes it possible to be in circulation over a long period of time. 8. What does uniformity relate to? Equal denominations of money should have the same value. 9. What is recognizability? Money should be easily recognized for what it is and hard to copy. 10.How does money function? Since money is best defined in terms of what it does, the economists describe money in terms of its three basic functions - the needs it fulfills in every society. Medium of exchange, a store of value, a measure of value . 11.What is money as a Medium of exchange? When moneyis 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. 12.How does money perform a function of a Measure of value? When performing afunction of a measure of value money is used as a common denominator of value for pricing goods and services. The use of money as a measure of value helps make rational market decisions. 13.What does money mean as a Store of value? Another function of money is a store of value. Money as astore of value enables people to use the value of something that they sell today to make a purchase sometime in the future. The main disadvantages of using money as a store of value are that money bears no interest and in an inflationary period, when prices of goods and services rise, the value of money or its purchasing power actually falls. 14.What does the purchasing power of money mean? To the economists the value of money orits purchasing power means the amount of goods and services people can buy with their money. When prices increase, money cannot buy as much. Its purchasing power declines. 15.Why and when does the value of money change? An extended period of rising prices is called inflation. Economists distinguish two general types of inflation – demand-pull inflation and cost-push inflation. A period in which prices are falling is called deflation. The value of the monetary unit increases during periods of deflation. 1.What are the main purposes of collecting taxes? Taxes are the most important source of revenues for modern governments. Without taxes to finance its activities, governments could not exist. Governments use tax revenues to pay soldiers and police, to build roads and bridges, to control schools and hospitals, to provide food to the poor and medical care to the elderly. Thus the principal purpose of taxes is to pay for the cost of government. 2.What is a tax? To tax is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. 3.What types of taxes do governments impose? Governments impose many types of taxes. In most democracies, individuals pay income taxes when they earn money, consumption taxes such as excise tax,sales taxes, and value-added taxes when they spend it, property taxes when they own a home or land, and some others. 4. What are income and property taxes? An Income tax is a tax on the income earned by individuals and corporations. A Property tax is a tax based on the value of property owned by the taxpayer 5. What are sales and value-added taxes? A Sales tax is a regressive tax added to the price of goods and services at the time they are sold. A Value-added tax is a tax levied on the value added to goods at every stage of production. 6. What excites considerable controversy when it comes to taxation? Most people would agree that some taxation is necessary, but the question of which taxes and in what amounts can lead to considerable disagreement. In comparing the advantages of one tax over another, it is convenient to focus on the following questions: Who ought to pay taxes? What types of taxes are being considered? Who will actually pay taxes? 7. What are the principles of taxation? Most economists believe that a tax system should follow äîòðèìóâàòèñÿ two main principles: the ability-to-pay principle and the benefits-received principle. 8. 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. 9. What does the ability-to-pay principle state? 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 10. 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. 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. 11. Why do sales taxes and value-added taxes have a regressive effect? Both sales taxes and value-added taxes are not based on income, they have a regressive effect because they take a larger share of earnings from a low-income taxpayer than from a high-income taxpayer. 12. What is an incidence of the tax? The way a tax affects people is called the tax incidence. Incidence refers to the individual or business that will bear the burden of taxes. The incidence of the tax depends on how buyers and sellers of the commodity respond when the tax is imposed. Date: 2015-12-17; view: 1593
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