how prices are determined

demand

Consumer willingness and ability to buy products

Factors of Demand

Population, Income, Tastes and Preferences, Complementary Goods, Substitutes

demand curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded

supply

the quantity producers are willing to produce at any given price

factors of supply

input costs, labor productivity, technology, government action, producer expectations, number of producers

supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

equilibrium price

the price at which the quantity demanded equals the quantity supplied

excess demand

the amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price

excess supply

the amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds the equilibrium price

revenue

price X quantity

complements

two goods that are bought and used together

substitutes

goods used in place of one another

price elasticity of demand

a measure of the sensitivity of demand to changes in price, computed as the percentage change in quantity demand divided by the percentage change in price

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

factors of PED

The degree of necessity.

The desire for that good or service.

The share of the overall budget spent on that good or service.

The availability of substitutes.

factors of PES

Availability of spare capacity

Availability of required resources

Length of production time