3. Price Mechanism and Interrelated Markets
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6 Terms
Price Mechanism Functions
Allocation of Scarce Resources/Allocative Efficiency
Rationing of Scarce Resources
SIgnalling of Excess Demand or Excess Supply
Incentivise Producers to Increase/Decrease Output
What is Joint Demand
When two products are demanded together so that the demand for one product is directly related to the demand for the other product
What is Competitive Demand
When the demand for one product increases the demand for another product decreases
What is Composite Demand
When a product has more than one use so that an increase in the demand for one use leads to a fall in the supply of the product that is available to use elsewhere
What is Derived Demand
When the demand for a product, or factor of production, is determined by the demand for a different product
What is Joint Supply
When the output of one product also results in the output of a different product
