1.2 Price Determination in a Competitive Market

Competing Supply

When resources can be used to produce one good or another good, not both

Competitive Market

A market with large numbers of buyers and sellers, with low barriers to entry and exit

Complementary Goods

Goods in joint demand; these goods are often bought together, e.g printers and ink cartridges

Composite Demand

Demand for a multi-purpose good

Conditions of demand

A determinant of demand other than the good's price, that sets the position of the good's demand curve

Condition of supply

A determinant of supply other than the good's price, that sets the position of the good's supply curve

Consumer sovereignty

Consumers can collectively govern production in a market via exercising spending power. Strongest in perfectly competitive markets

Cross elasticity of demand (XED)

Measures the responsiveness of a good's demand to a change in the price of a different good

Demand

The quantity of a good or service that a consumer is willing and able to buy at a given price, at a given time

Derived Demand

Demand for a good that is the input of another good

Disequilibrium

Excess supply or demand in a market

Effective demand

Desire for a good or service that is backed by the ability to pay for said good or service

Elasticity

The proportionate responsiveness of a second variable to change in a first variable

Equilibrium

No excess supply or demand in a market; a state of balance between opposing forces

Equilibrium price

The price where planned demand matches planned supply

Excess Demand

When consumers want to buy more than producers are willing to sell; occurs below equilibrium price

Excess supply

When producers want to sell more than consumers are willing to buy; occurs above equilibrium price

Exchange

Trading objects of value utilising a media of exchange e.g money

Income elasticity of demand (YED)

Measures the responsiveness of a good's demand to a change in the incomes of consumers

Inferior Good

A good for which demand rises as incomes fall

Joint Supply

When one good is produced, another good is also produced from the same raw materials

Normal good

A good for which demand rises as incomes rise

Price elasticity of supply

Measures the responsiveness of a good's supply to a change in price

Producer sovereignty

Producers determine what is produced and the prices charged

Substitute Good

A good in competing demand; a good that can be used in place of another similar good

Supply

The quantity or a good or service that a producer is willing and able to sell at a given price, at a given time