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SOCIAL STUDIES:
Introducing Markets
Essential Questions
Do all markets function the same way around the world?
Yes and no. In today’s globalised world, markets often interact internationally, e.g.
stock markets and trading. However there are always differences since markets do
not function on its own. It is largely affected by a country’s government and their
regulations and influence on markets.
What (or who) determines the prices of goods and services?
Usually in Economics, the prices of a good or service is determined by the demand
and supply diagram. The equilibrium price is the point where the demand curve
meets the supply curve. In a market economy, which is when there is little to no
government interference, the prices are determined by the consumers as their
demand for a product gives perfect information to the firms and how they set the
prices, occurs during perfect competition of firms. However this is not always true
since governments often intervene e.g. price ceilings.
What is money - and where do the different types of money derive their value?
Money serves as a medium of exchange, a unit of accounting, and a store of value.
Money is a medium of exchange in the sense that we all agree to accept it in making
transactions. A value of a currency derives from its supply and demand. If the
demand for one currency is higher, then its external value (placed against another
currency) will be higher.
To what degree can governments control prices or quantities of goods and services
exchanged?
Although we learn about market and planned economies in Economics, the majority
of countries function in a mixed economy, which is a mixture of both. This refers to
an economy where the government adjusts for any market failure or inefficiencies in
allocating its resources. In doing so, governments set price ceilings, price floors,
quotas, bans, subsidies and regulations on products to control its quantity and
quality. However, this cannot be overdone as this puts pressure on government’s
expenditure and may hurt the economy as it slows down due to too many
restrictions.