Edexcel Igcse Economics Answer

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 155 (49655 words) Published: March 10, 2013
Answers: Section A:
The Market System
Chapter 1
(a) In all of the photographs goods are being traded. In A, people are buying goods from market traders in a souq. In B, goods are being sold by auction. In C, shoppers are buying goods from a supermarket. And finally, in D, cars are being bought at a car lot. (b) In C, shoppers queuing at a checkout will pay the price that is displayed on the labels of products (or at the point of sale). Shoppers will either pay the price shown or choose not to buy the various products. In D, the price is determined through negotiation between the car salesperson and the buyer. There is likely to be a price displayed for the car but this is usually a starting point for negotiations to begin. The price a car is eventually sold for will nearly always be lower than the price displayed.

(c) The locations in all of the photographs may be described as markets.

Question 1:
(a) The prices of CDs in Tamer’s shop have been falling recently. He has not been able to sell the CDs because people do not want to buy them. This is because many people prefer to download music from the internet and listen to it using an iPod. Tamer has lowered prices to encourage his customers to buy CDs. However, he has been unsuccessful and the shop is being closed down.

Answers: Section A: The Market System

Getting started:

(b) Market systems encourage resources such as raw materials, land, machines and workers to flow into the thriving markets and out of the declining markets. In thriving markets prices will be rising. This means that sellers will probably be making healthy profits. These healthy profits will attract more sellers and therefore more resources will be needed to make these ‘popular’ goods. On the other hand, in declining markets, prices will be falling. This will result in sellers leaving the market and the release of the resources that they would have used. In this case, Tamer is trading in a declining market. His CDs are becoming unpopular because customers are using iPods. As a result he is closing his shop down. This means that the resources used by Tamer, such as his premises, can be made available for other uses.

Exam practice – eBay:
(a) A market is said to exist when buyers and sellers communicate to exchange goods and services for money. A market is not necessarily a location. Trading between buyers and sellers can take place over the internet, through newspapers or over the telephone for example. (b) Buyers and sellers on eBay communicate online. A seller will add a description of a product to a set of listings in the relevant section on the eBay web site, and buyers will place their bids if they are interested.

(c) eBay is an online auction site. As with all auctions, goods are sold to the highest bidder. The prices of goods sold on eBay are usually equivalent to the highest bid made in the time period allowed. (d) The market system has two main functions. One is to determine the prices of goods and the other is to allocate the resources in an economy. Therefore B is the correct answer.

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Answers: Section A: The Market System

(e) In any market, sellers will try to sell goods at the highest possible price. In complete contrast buyers will do the opposite. They will try to buy at the lowest price. However, if sellers refuse to lower their prices sufficiently, buyers will go without or shop elsewhere. As a result a seller will be left with unsold goods. Stocks of unsold goods suggest to a seller that prices are too high. (f) The forces of supply and demand are responsible for setting prices in markets. The prices set on eBay are no different. The sellers on eBay are the people who list the products for sale. This represents supply. The buyers on eBay are the people who make the bids and they represent demand. They say what they are prepared to pay for a product by making a bid online. At the end of the time period set by the seller, the...
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