Key Info for Chapter 2 - Price determination in a competitive market Flashcards
Define market
A market is a set of arrangement which brings buyers and sellers into contact to trade or exchange products or services
define the market price
also known as the equilibrium price - is set by supply and demand
Define competitive market
a market in which the large number of buyers and sellers possess good market information and can easily enter or leave the market
Define supply
the quantity of a good or service that firms are willing and able to sell at a given price in a given period of time
Define demand
The quantity of a product that consumers are able and willing to purchase at various prices over a period of time
Define effective demand
the willingness and ability to buy a product
define market demand
the quantity of goods in a market that consumers are willing and able to buy
What is the law of demand
Presuming other factors remain constant, there is an inverse relationship between the price of a good and the demand
What happens to the demand as the price rises
contracts
What happens to the demand as the price falls
extends
What makes a market competitive?
When there are large numbers of buyers and sellers all passively accepting the ruling market price set by all those in the market
what type of markets lack entry and exit barriers
competitive
Define conduction of demand
a determinant of demand other than the goods own price that fixes the position of the demand curve
What happens to the demand curve when the demand increases
moves right
what causes the demand curve to move left
decrease in demand
If any of the conditions change what happens to the demand curve
it moves right or left
define the income effect
when the price of a good falls because the consumer can maintain current consumption for less expenditure, providing that the good is normal, some of the resulting increase in real income is used buy consumer to buy more of this product
define the substitution effect
when the price of a good falls because the product is now relatively cheaper than an alternative item and so some consumers switch their spending from the good in competitive demand to their product
true or false - a change in price never affects quantity demanded
FALSE - it ALWAYS affects quantity demand
What are the 5 conditions of demand
- Price of substitute goods or goods in competing demand
- The price of goods in joint demand (complements)
- Personal income - real disposable income
- Tastes and preferences
- Population size
What are substitutes
bought in place of each other
give an example of substitutes
tea and coffee, grapes and strawberries, playstation and Xbox
what are complements
goods bought together
give an example of complements
cups and saucers, knives and forks, cars and petrol