Economics Chapter 3

Key Terms for Chapter 3 AQA A level Fiftition

A voluntary meeting of buyers and sellers with exchange taking place.

Market

The quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time.

Demand

The quantity of a good or service that producers are willing and able to sell at given prices in a given period of time.

Supply

Markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market.

Comptetitive Markets

The price at which planned.

Ruling Market Price: (also known as equilibrium price)

The desire for a good or service backed by an ability to pay.

Effective Demand

The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices.

Market Demand

The quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices.

Individual Demand

A determinant of demand, other than the good’s own price, that fixes the position of the demand curve.

Condition of Demand

Alternative goods that could be used for the same purpose.

Substitute Goods

When two goods are complements they experience joint demand.

Complementary Goods

A rightward shift of the demand curve.

Increase in Demand

A leftward shift of the demand curve.

Decrease in Demand

The proportionate responsiveness of a second variable to an initial change in the first variable.

Elasticity

Measure the extent to which the demand for a good changes in response to a change in the price of that good

Price elasticity of demand

percentage change in quantity demanded

---

percentage change in price

price elasticity of demand

Measures the extent to which the demand for a good changes in response to a change in income

Income elasticity of demand

percentage change in quantity demanded

---

percentage change in income

income elasticity of demand

Measure the extent to which demand for a good changes in response to a change in price of another good

Cross Elasticity of Demanded

percentage change in quantity of A demanded

---

percentage change in price of B

cross elasticity of demand

The time period in which one factor of production is fixed and cannot be varied

Short Run

The time period in which no factors of production are fixed and all factors of production can be varied

Long Run

The quantity of a good or service that all the firms in a market plan to sell at given prices in a given period of time

Market Supply

The difference between total sales revenue and total cost of production

Profit

All the money received by a firm from selling its total output

Total Revenue

A determinate of supply, other than the good’s own price, that fixes the position of the supply curve.

Condition of Supply

A rightward shift of the supply curve

Increase in supply

A leftward of the supply curve

Decrease in Supply

Measure the extent to which the supply if a good changes in response to a change in the price of that good.

Price elasticity of supply

percentage change in quantity supplied

---

percentage change in price

Price elasticity of supply

A state of rest or balance between opposing forces (price and quantity)

Equilibrium

A situation in which opposing forces are out of balance

Disequilibrium

When planned demand equals planned supply, where the demand curve crosses the supply curve

Market Equilibrium

Exists at any price other than the equilibrium price

Market Disequilibrium

When firms wish to sell more than consumers wish to buy, the price is above the equilibrium price

Excess Supply

When consumers wish to buy more that firms wish to sell, the price is below the equilibrium price.

Excess Demand

When one good is produced, another good is also produced from the same raw materials, perhaps as a by product (beer and marmite)

Joint Supply

When a good is viewed by consumers as an alternative for another good (goods are substitutes)

Competitive Demand

Demand for a good which has more than one use, meaning that an increase in demand for one use of the good reduces the supply of the good for an alternative use. (Competing Supply)

Composite Demand

Demand for a good or factor of production, wanted not for its own sake but as a consequence of the demand for something else.

Derived Demand