Price Determination Key Terms Flashcards
What is a Market?
A place where a firm and it’s consumers come together to buy and sell.
What is Demand?
The amount of a good or service consumers are willing and able to buy at any given price.
What is a normal good?
A normal good is one where if price rises demand will fall. Therefore a negative correlation.
What is a Veblen good?
‘Snob effect’ As price rises demand increases. This was due to status increase associated with a product.
What is the substitution effect?
As prices are cheaper the good is more attractive.
What is the income effect?
Income effect when as price goes down quantity goes up as we have more real purchasing power
What is effective demand?
Demand backed up with the ability to pay
What is Potential (Latent) Demand?
Not yet expressed in the market place because consumers do not have the ability to pay
What is Derived Demand
The demand for a factor of production that is used to produce another good or service i.e the product is demanded for what it can produce
EG Steel to make cars and buildings
What is Joint Demand?
When one product is demanded jointly with another. i.e Pasta and Sauce
What is Composite Demand?
Where goods have more than one use and increase in demand for one product can lead to a fall in supply of the other as resources are switched.
What is income elasticity of demand?
Income elasticity of demand is a measure of the responsiveness of demand to a change in income.
