price determination in a competitive market Flashcards
demand
the quantity of goods and services desired by customers who have the ability to afford them
demand curve
slopes downward from left to right because customers reduce demand as price increases
price
the only factor that causes a movement
shifts in the demand curve
changes in income, trends, seasonality, world events
movements along the demand curve
price
price elasticity of demand
responsiveness of demand to a change in price
income elasticity of demand
responsiveness of demand to a change in income
cross elasticity of demand
responsiveness of demand to a change in the price of another good
normal goods
normal goods are products and services that see a rise in demand when incomes rise
has an elasticity of 0-1
inferior goods
inferior goods are products and services that see a decrease in demand as incomes rise
have a negative elasticity
superior goods
superior goods or luxury goods make up a larger proportion of consumption as income rises
have an elasticity of greater than 1
substitute goods
when the demand for one good can replace the demand for another
complementary good
when one good is demanded, another good is also demanded at the same time
supply
the willingness to produce goods and services based on a profit incentive
profit incentive to expand production
suppliers provide more at higher prices so they become more profitable
shifts in the supply curve
raw materials, technological advancements, cost of production, economies of scale
movement along supply curve
price
equilibrium price
when there is a balance in the market as supply equals demand. All products that are available are sold and the market is cleared
joint demand
when one good is demanded, another good is also demanded at the same time
competitive demand
when the demand for one good can replace the demand for another
composite demand
demand for a good that has more than one use
derived demand
when the demand for a good or service exists because it is an input into the production of another good or service
joint supply
when the production of one good leads to the production of a by product
by product
a secondary product that is made as a result of another good being produced
