3. Price Determination In A Competitive Market Flashcards
What is a market?
A situation where buyers and sellers come together to engage in trade.
What is a competitive market?
A situation where there are a range number of potential buyers and sellers with abundant information about the market.
What is the equilibrium price?
The price at which the planned demand of consumers equals the planned supply of firms.
What does demand refer to?
The quantity of a good or service that consumers are willing and able to buy at given prices in a particular time period.
What is effective demand?
Consumers desire to buy a good, backed up by the ability to pay.
What does the Law of Demand state?
That as the price of a good or service falls, the quantity demanded increases, this is an inverse relationship between price and quantity demanded of a good or service.
What is the ‘assumption of ceteris paribus’?
Assuming that all other possible determinants of demand are held constant.
What factors lead you to a shift in the demand curve?
Conditions of demand.
What are the conditions of demand?
- Real disposable incomes
- Tastes and preferences (fashions)
- Population
- Prices of substitute products
- Prices of complementary products
What are real disposable incomes as a condition of demand?
The incomes of individuals after the effects of inflation, taxation, and benefits are taken into account.
What is taxation?
A charge placed by the government on various forms of economic activity. Most taxes are on forms of income and types of spending.
What are tastes and preferences (fashions) as a condition of demand?
The popularity of goods and services is often influenced by changes in society’s preferences and may be influenced by media, advertising, and technological change.
What is population as a condition of demand?
The size, age, and gender composition of the population will affect the market size for many products.
What are prices of substitute products as a condition of demand?
Substitute products are those in competitive demand that may be seen as close alternatives to a particular good or service.
What are prices of complementary products as a condition of demand?
Complementary products are those in joint demand, ie. Demanded together with other goods or services.
