4.1.3 Price Determination in a Competitive Market Flashcards
complementary goods
used in joint demand where as the price of one good rises the demand for both complementary goods will fall - negative cross price elasticity
composite demand
g/s have more than one use so an increase in demand of one product leads to a decrease in supply of another (milk, land)
demand
quantity of a g/s consumers are willing and able to buy at a given price in a given time period
derived demand
occurs when the demand for a particular product depends on the demand for another product/activity (labour, steel)
normal goods
positive YED, as income rises demand for the good increases. Necessities have YED between 0 and +1. Luxury goods have YED >+1
substitute goods
goods in competitive demand and act as replacements for another product
inferior goods
negative YED, as income rises demand decreases
effective demand
occurs if desire for g/s is backed by willingness and ability pay
law of demand
inverse relationship between price of good and demand
PDY
gross income minus direct taxes (income and national insurance) plus cash welfare benefits entitlements
inflation
sustained rise in the general price level which reduces the purchasing power of a stock of money
income tax
direct tax paid by workers on their earnings (wages, interest on savings, pension income)
rate of interest
price of money, %cost of borrowing and %reward for saving
credit
deferred payment, credit cards and loans from bank to fund consumption
supply
quantity of g&s a firm is willing and able to supply at a given price in a given time period
