how markets work

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  • How Markets Work 1
    • rational decision making
      • consumers aim to maximise utility - satisfaction gained from consuming a product
      • firms aim to maximise profits - keep shareholders happy
    • price mechanism
      • incentive function - incentive to work hard or what to buy
        • signalling function - signal where resources should be used
          • rationing function - rationing goods when price increases, the limited resources will be rationed and allocated to those who can afford them/ value them most highly


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