Price Determination In Competetive Markets Flashcards
1
Q
Demand
A
•Quantity of good/service consumers are willing to pay for
2
Q
Effective demand
A
•Desire to buy + ability to pay
3
Q
Derived demand
A
•Demand for a factor of production (eg labour)
4
Q
Law of demand
A
- Price fall = demand increase
* Price increase = demand fall
5
Q
Shifts in demand
A
- changes in prices of substitutes
- changes in prices of compliments
- changes in real income
- effects of advertising
- seasonal factors
6
Q
Supply
A
Quantity producer is willing and able to supply
7
Q
Laws of supply
A
- Rise is price = increase in supply
* decrease in price = decrease in supply
8
Q
Shifts in supply
A
- changes in production costs
- changes in technology
- subsidies and regulations
- number of producers in market
- change in price of substitute
9
Q
Price Elasticity of Demand
A
Responsiveness of demand to change in price
10
Q
Factors affecting PED
A
- Number of close substitutes
- degree of necessity
- % of consumer income spent on good
- time period allowed for price to change
11
Q
Unitary elastic demand (PED=1)
A
- Change in price = proportionate change in demand
* total spending will remain same despite price
12
Q
Price elasticity of supply (PES)
A
Responsiveness of supply to change in price
13
Q
Factors affecting PES
A
- spare production capacity
- ease/cost of labour substitution
- production speed
14
Q
Income elasticity of demand (IED)
A
Responsiveness of demand to change in income
15
Q
Normal goods
A
- +ive IED
* rise in income =rice in demand
