Price determination in a competitive market Flashcards
what is a market
a situation where buyers and sellers come together to engage in trade (doesn’t have to be in a physical location, with e-commerce now playing an increased important role in the exchange of goods and services)
what is a competitive market
a situation where there are a large number of potential buyers and sellers with abundant information about the market
(all individually powerless to influence the ruling market price = equilibrium price)
what is equilibrium price
the price at which the planned demand of consumers = the planned supply of firms (determined by the interactions if market demand and market supply)
what is demand
the quantity of a good or service that consumers are willing and able to buy at given prices in a specified time period
what is market demand
sum of all consumers
what are economists concerned with (what is effective demand)
concerned with effective demand, consumers desire to buy a good backed up with ability to buy
what is individual demand
quantity that you want
what is the law of demand
that price is inversely proportional to demand
when price increases then demand decreases
when price decreases then demand increases
what do you do when analysing change in demand
when analysing effects of a change in price on quantity demanded we assume ceteris paribus
what is ceteris paribus
assumption that/ assume all other possible determinants of demand are held constant
draw a market demand curve (movement)
what happens with a movement along a demand curve
an increase in demand (resulting from a decrease in price) with lead to an extension of demand
a decrease in price (resulting from an increase in price) will lead to a contraction in demand
what are the factors affecting demand
PASIFIC
population, advertisement, substitute goods, income, fashion/trends, interest rates, complementary goods
what is population
size,age,gender composition of the population will affect the market size for many products
what is advertisement
advertising
what is prices of substitute goods
substitute products: a good that may be consumed as an alternative to another good, these are in competitive demand that may be seen as close alternatives to a particular good or service
what is real disposable incomes
the incomes of individuals after the effects of inflation, taxation and benefits are taken into account
what is taxation
a charge placed by the government on various forms of economic activity, most taxes are on forms of incomes and types of spending
what is fashion and trends (tastes and preferences)
the popularity of goods and services = influence by changes in society’s preferences, influenced by the media, ads , technological change
what is interest rates
what is prices of complementary products (complementary goods)
a good that tends to be consumed together with another good, these are in joint demand (demanded together with other goods and services)
what would happen if any of these factors change
if any of these factors changes then the demand curve for the good or service in question will change either rightward shift (increase in demand) or leftward shift (decrease in demand) of the demand curve
draw a market demand curve (with shifts)
what does a rightward shift in demand mean
greater quantity of a good or service is demand at any given price
