3: Price Determination In Competitve Market Flashcards
What are competitive markets
They are markets in which the large number of buyers and sellers possess good market info and can easily enter or leave the market.
What is a ruling market price
It is the price at which planned demand equals planned supply
What is effective demand
The desire for a good or service backed by an ability to pay
What are substitute goods
Alternative goods that can be used for the same purpose
What is complementary goods
When two goods are complement , they experience joint demand
What is elasticity
The proportionate responsiveness of a second variable to an initial change in the first variable
What is price elasticity of demand
It measures the extent to which the demand for a good changes in response to a change in price of that good
What is income elasticity of demand
It measures the extent to which the demand for a good changes in response to a change in income
What is cross-elasticity of demand
It measures the extent to which the demand for a good changes in response to a change in price of another good
What is market equilibrium
It is when a market is in equilibrium which is when planned demand equals planned supply
What is market disequilibrium
It exist at any other price other than the equilibrium price which is when the planned demand is higher than planned supply and other way round
What is joint supply
It is when on good is also produced, another good is also produced from the same raw materials, perhaps as a by-product
What is composite demand
It is when the demand for a good which has more than one use which means that an increase in demand for one use of the goods reduces the supply of the goods for an alternative use. It is related to the concept of competing supply
What is derived demand
It is when the demand for a good or factor of production, wanted not for its own sake but as a consequence of the demand for something else.
