Price Determination Flashcards
What is a market
A voluntary meeting of buyers and sellers in which exchange takes place
Demand
Quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time
Supply
Quantity of a good or service that producers are willing and able to sell at given prices in a given period of time
Competitive markets
Markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market
Ruling market price
Also known as equilibrium price, the price at which planned demand equals planned supply
Effective demand
The desire of a good or service backed by an ability to pay for it
Market demand
Quantity of a good or service that all consumers in the market are willing and able to buy at different market prices
Individual demand
Quantity of a good or service that a particular consumer is willing and able to buy at different market prices
Condition of demand
A determinant of demand, other than the good’s own price, that fixes the position of the demand curve. A change in condition, such as different fashion tastes, cause a shift in the demand curve
Main conditions of demand
Prices of substitute goods, Prices of complementary goods, Personal income, Tastes and preferences, Population size
Substitute goods
Alternative goods that could be used for the same purpose
Complementary goods
When two goods are complements, they experience joint demands
Normal good
A good for which demand increases as income rises and demand decreases as income falls, like clothing
Inferior good
A good for which demand decreases as income rises and demand increases as income falls. An example could be inexpensive foods like ready meals or instant noodles
Price elasticity of demand
Measures the extent to which the demand for a good change in response to a change in the price of that good