Price determination in a competitive market - Key terms

Question 1

Competitive market

Answer 1

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

Question 2

Equilibrium price

Answer 2

The price at which planned demand for a good or service exactly equals planned supply.

Question 3

Supply

Answer 3

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

Question 4

Demand

Answer 4

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 5

Effective demand

Answer 5

The desire for a good or service backed by and 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

Condition of demand

Answer 7

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

Question 8

Increase in demand

Answer 8

A rightward shift of the demand curve.

Question 9

Decrease in demand

Answer 9

A leftward shift of the demand curve.

Question 10

Normal good

Answer 10

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

Question 11

Inferior good

Answer 11

A good for which demand decreases as income rise and demand increases as income falls.

Question 12

Elasticity

Answer 12

The proportionate responsiveness of a second variable to and initials change in the first variable.

Question 13

Price elasticity of demand

Answer 13

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

Question 14

Income elasticity of demand

Answer 14

Measures the extent to which the demand for a good changes in response to a change in income

Question 15

Cross-elasticity of demand

Answer 15

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

Question 16

Market Supply

Answer 16

The quantity of a good or service that all firms plan to sell at given prices in a given period of time.

Question 17

Profit

Answer 17

The difference between total sales revenue and total costs of production.

Question 18

Total revenue

Answer 18

The money a firm receives from selling its outputs

Question 19

Conditions of supply

Answer 19

Determinants of supply, other than the good’s own price, that fix the position of the supply curve.

Question 20

Increase in supply

Answer 20

A rightward shift of the supply curve.

Question 21

Decrease in supply

Answer 21

A leftward shift of the supply curve.

Question 22

Price elasticity of supply

Answer 22

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

Question 23

Equilibrium

Answer 23

A state of rest or balance between opposing forces.

Question 24

Disequilibrium

Answer 24

A situation in a market when there is excess supply or excess demand.

Question 25

Excess supply

Answer 25

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

Question 26

Excess demand

Answer 26

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

Question 27

Joint supply

Answer 27

When one good is produced, another good is also produced from the same raw materials.

Question 28

Competing supply

Answer 28

When raw materials are used to produce one good they cannot be used to produce another good.

Question 29

Composite demand

Answer 29

Demand for a good which has more than one use.

Question 30

Derived demand

Answer 30

Demand for a good which is an input into the production of another good.

Question 31

Merit good

Answer 31

A good which when consumed leads to benefits which other people enjoy or a good for which the long-term benefit or consumption exceeds the short-term benefit enjoyed by the person consuming the merit good.

Whether a good should be regarded as a merit good, depends on the value judgements being made.