Key Terms 3 - Price Determination in a Competitive Market Flashcards
Market
A voluntary meeting of buyers and sellers with exchange taking place.
Ruling Market Price
The price at which planned demand for a good or service exactly equals planned supply.
Demand
The quantity of a good or service that consumers are willing and able to buy at a given price in a given period of time.
Effective Demand
The desire for a good or service backed by the ability to pay.
Individual Demand
The quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices.
Market Demand
The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices.
Competitive Markets
Markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market.
Supply
The quantity of a good or service that producers are willing and able to sell at given prices in a given period of time.
Condition of Demand
A determinant of demand, other than the good’s own price, that fixes the position of the demand curve.
Increase in Demand
A rightward shift of the demand curve.
Decrease in Demand
A leftward shift of the demand curve.
Normal Good
A good for which demand increases as income rises and demand decreases as income falls.
Inferior Good
A good for which demand decreases as income rises and demand increases as income falls.
Elasticity
The proportionate responsiveness of a second variable to an initial change in the first variable.
Price Elasticity of Demand
Measures the extent to which the demand for a good changes in response to a change in the price of that good.
Income Elasticity of Demand
Measures the extent to which the demand for a good changes in response to a change in income; it is calculated by dividing the percentage change in quantity demanded by the percentage change in income.
Cross-Elasticity of Demand
Measures the extent to which the demand for a good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in quantity demanded by the percentage change in the price of another good.
Complementary Goods
When two goods are complements, they experience joint demand.
Substitute Goods
Alternate goods that could be used for the same purpose.
Market Supply
The quantity of a good or service that all the firms in a market plan to sell at given prices in a given period of time.
Condition of Supply
A determinant of supply, other than the good’s own price, that fixes the position of the supply curve.
Increase in Supply
A rightward shift of the supply curve.
Decrease in Supply
A leftward shift of the supply curve.
Price Elasticity of Supply
Measures the extent to which the supply of a good changes in response to a change in price of that good.
Equilibrium
A state of rest or balance between opposing forces.
Disequilibrium
A situation in which a market when there is excess supply or excess demand
Market Equilibrium
A market is in equilibrium when planned demand equals planned supply and the demand curve crosses the supply curve.
Market Disequilibrium
Exists at any price other than the equilibrium price: either excess demand or excess supply exists within the market.
Excess Demand
When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.
Excess Supply
When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price.
Joint Supply
When one good is produced, another good is also produced from the same raw materials, perhaps as a by-product.
Composite Demand
Demand for a good which has more than one use, which means that an increase in demand for one use of the good reduces the supply of the good for an alternative use. It is related to the concept of competing supply.
Derived Demand
Demand for a good or factor of production, wanted not for its own sake, but as a consequence of demand for something else.
Short Run
The time period in which at least one factor of production is fixed and cannot be varied.
Long Run
The time period in which no factors of production are fixed and in which all the factors of production can be varied.
