price determination key terms Flashcards
supply,demand
effective demand
desire and ability of consumers to purchce goods and services at a given price level?
market demand
total quantity of a product or service that all customers in a specific market are willing to be able to purchase at a given price level.
individual demand
quantity of a good or service that an individual consumer is willing or able to purchase at various price levels.
condition of demand
the various factors that influence the quantity of product or service that consumers are willing and able to purchase other than price levels
substitute goods
products or services that can be used in place of each other to satisfy similar needs or wants.
complementry goods
products or services that are typically used together to satisfy a common need or want.
normal good
a good which demand increases as income rises and demand decreases as income falls
inferior good
a good for which demand decreases as income rises and demand increases as income falls
market supply
total quantity of a good or service that all suppliers are willing and able to offer for sale at different prices in a given market.
profit
the difference between total sales revenue and total costs of production.
condition of supply
the various of the factors that influence the quantity of a good or service that supplies are willing and able to provide
market of supply
a market is in equilibrium when planned demand equals planned supply where the demand curve crosses the supply curve
market disequlibrium
exist at any price other than the equilibrium price when either planned demand is less than planned supply or planned demand is more than planned supply
excess supply
when firms wish to sell more than consumers wish to buy, with the price above equilibrium price
excess demand
when consumers wish to buy more than firms wish to sell the price below the equilibrium price
joint supply
when one good is produced of a good is also produced from the same materials perhaps as a by product
composite demand
demand for a good witch 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
derived demand
demand for good or factor of production wanted not for its own sake but as a consequence of the demand for something else
joint demand
A situation where two or more goods are demanded together because they are used together and complement each other
Rationing function
rising prices to ration demand for a product, Or decreasing prices to Ration supply
Signalling function
Prices provide information to buyers and sellers
Incentive function
Prices create incentives of people To alter their economic behaviour for example a higher price creates an incentive for firms to supply more of a good or service
Allocative function
Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which that is excess demand
Inelastic demand
The quantity demanded is not a very responsive to changes in price, even if the price increases or decreasing demand remains the same / stable this includes necessity items where there is limited substitutes
Elastic demand
This is where quantity demanded of a product or service is highly responsive to changes in prices if the price of the product increases the demand decreases and vice versa this is why there is many substitutes and products are non essential
Price elasticity of demand
measures the responsiveness of quantity demanded given a change in price
Perfectly priced inelastic
Regardless of the price changing quantity demanded won’t change Lifesaving medicines, addictive substances they’re not essential but people will still be willing to pay if there is an increase in price
Perfectly priced elastic
In extreme examples a change in price will have an infinitely large change in quantity demanded ,consumers are highly responsive and are not willing to pay at a higher price For example clothes, electronics there is many substitutes
Unitary elastic
The value of ped is exactly one
Income elasticity of demand
y E D- Measures the responsiveness of quantity demanded given a change in income
Necessities
goods/services that are considered essential for basic needs and are required for a daily living
Cross elasticity of demand
Is the responsiveness of a change in demand of one good (x) To a change in the price of another good(y)
Complementary goods
Have a negative cross elasticity of demand if one good becomes more expensive the quantity demanded for both goods will fall
Products or services that are consumed together or used in conjunction with each other for example printer and ink cartriges
Substitutes
Can replace another good They cross elasticity of demand is positive and the demand curve is upward sloping if the price of one brand of a tv increases consumers might switch to another brand
Goods or services that can be used in place of each other for a similar purpose or need e.g., coke and pepsi
Price elasticity of supply
Measure the responsiveness of quantity supplied to a change in price, reflects the ability of producers to change the output following a change in demand
demand
Quantity of a good or service that a consumer is willing and able to buy at given price in a particular time.
Supply
Quantity of a good or service that firms are willing and able to sell at a given price at a particular time
total revenue
price X quantity sold
