Price determination in a competitive market

Question 1

Market

Answer 1

A voluntary meeting of buyers and sellers with exchanger taking place

Question 2

Demand

Answer 2

The quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time

Question 2

Supply

Answer 2

The quantity of a good or service that producers are willing and able to sell at given prices in a given period of time

Question 3

Competitive market

Answer 3

Markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market

Question 4

Ruling market price / Equilibrium price

Answer 4

The price at which planned demand equals planned supply

Question 5

Effective demand

Answer 5

The desire for a good or service backed by an ability to pay

Question 6

Market demand

Answer 6

The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices

Question 7

Individual demand

Answer 7

The quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices

Question 8

Condition of demand

Answer 8

A determinant of demand, other than the good’s own price, that fixes the position of the demand curve

Question 9

Substitute goods

Answer 9

Alternative goods that could be used for the same purpose

Question 10

Complementary goods

Answer 10

When two goods are complements, they experience joint demand

Question 11

Increase in demand

Answer 11

A rightward shift of the demand curve

Question 12

Decrease in demand

Answer 12

A leftward shift of the demand curve

Question 13

Normal goods

Answer 13

A good for which demand increases as income rises and demand decreases as income falls

Question 14

Inferior good

Answer 14

A good for which demand decreases as income rises and demand increases as income falls

Question 15

Elasticity

Answer 15

The proportionate responsiveness of a second variable to an initial change in the first variable

Question 16

Price elasticity of demand

Answer 16

Measures the extent to which the demand for a good changes in response to a change in the price of that good

Question 16

Short run

Answer 16

The time period in which at least one factor of production is fixed and cannot be varied

Question 17

Long run

Answer 17

The time period in which no factors of production are fixed and all the factors of production can be varied

Question 18

Income elasticity of demand

Answer 18

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

Question 19

Cross elasticity of demand

Answer 19

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

Question 20

Market supply

Answer 20

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

Question 21

Profit

Answer 21

The difference between total sales revenue and total costs of production

Question 22

Total revenue

Answer 22

All the money received by a firm from selling its total output

Question 23

Condition of supply

Answer 23

A determinant of supply, other than the good’s own price, that fixes the position of the supply curve

Question 24

Increase in supply

Answer 24

A rightward shift of the supply curve

Question 25

Decrease in supply

Answer 25

A leftward shift of the supply curve

Question 26

Price elasticity of supply

Answer 26

Measures the extent to which the supply of a good changes in response to a change in the price of that good

Question 27

Equilibrium

Answer 27

A state of rest or balance between opposing forces

Question 28

Disequilibrium

Answer 28

A situation in which opposing forces are out of balance

Question 29

Market equilibrium

Answer 29

A market is in equilibrium when planned demand equals planned supply, where the demand curve crosses the supply curve

Question 30

Market disequilibrium

Answer 30

Exists at any price other than the equilibrium price, when either planned demand < planned supply or planned demand > planned supply

Question 31

Excess supply

Answer 31

When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price

Question 32

Excess demand

Answer 32

When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price

Question 33

Joint supply

Answer 33

When one good is produced, another good is also produced from the same raw materials, perhaps as a by-product

Question 34

Competitive demand

Answer 34

When a good is viewed by consumers as an alternative for another good i.e. the two goods are substitutes

Question 35

Composite demand

Answer 35

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

Question 36

Deprived demand

Answer 36

Demand for a good or factor of production, wanted not for its own sake, but as a consequence of the demand for something else