3 - Price Determination Definitions Flashcards
Effective Demand
Demand for a product which can be supported monetarily.
Market Demand
The total number of consumers who are willing and able to purchase a good or service at a given price.
Individual Demand
The demand for a good or service by a household or individuals.
Condition of Demand
At a higher price, demand for a product will contract, as well as other factors - weather, trends.
Substitute Goods
A product or service that consumers see as a good enough alternative to another product.
Complementary Goods
Products which are bought and used together.
Increase in Demand
Demand for a product increases, because of a change in another.
Decrease in Demand
Less of a product is purchased.
Normal Good
An increase in demand of certain goods because of higher living standards.
Inferior Good
A decrease in demand of certain goods because of an increase in living standards.
Market Supply
The quantity of a good or service that all firms in a market plan, to sell at given prices, in a given period of time.
Profit
The difference between total sales, revenue, and total costs of production.
Condition of Supply
A determinant of supply, other than price, which causes a shift in the supply curve.
Market Equilibrium
The state in which supply and demand balance out, and prices become stable as a result.
Market Disequilibrium
Quantity supplied isn’t equal to quantity demanded. As a result, price is above equilibrium.
Excess Supply
The quantity being offered exceeds quantity demanded, at the current price.
Excess Demand
Demand exceeds supply at a given price.
Joint Supply
Production of one good leads to the supply of another.
Composite Demand
Where goods have more than one use.
Derived Demand
The demand for a good or service that results from the demand for a different good or service.
Rationing Function
As prices rise, excess demand is removed, so only consumers who have the ability to pay can purchase a good.
Signalling Function
Prices provide important market signals to producers, to increase or decrease production.
Incentive Function
Increased prices strengthen incentives to firms, to produce more, in order to make a profit.
Allocative Function
Diverts resources to where they can maximise returns, and away from uses where they don’t.
