Microeconomics - Price Determination

These flashcards cover the key terms and concepts related to price determination in a competitive market.

Competitive Market

A market where a large number of buyers and sellers interact, without any one party being able to influence prices.

Equilibrium Price

The price at which the quantity demanded by consumers equals the quantity supplied by producers.

Law of Demand

The principle that, all else being equal, as the price of a good increases, the quantity demanded decreases.

Ceteris Paribus

An assumption that all other factors are held constant while analyzing the relationship between two variables.

Shifts of a Demand Curve

Changes in demand due to factors such as population, advertisements, substitute goods, income, fashion, interest rates, and complementary goods.

Excess Supply

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Excess Demand

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Market Disequilibrium

A situation where the quantity supplied does not equal the quantity demanded.

Price Mechanism

The process by which the interaction of supply and demand determines the price of goods.

Income Elasticity of Demand (YED)

The responsiveness of demand for a good to a change in consumer's real income.

Cross Elasticity of Demand (XED)

The responsiveness of the demand for a product following a change in the price of another product.

Price Elasticity of Supply (PES)

The responsiveness of the quantity supplied of a good or service to a change in price.

Joint Demand

Demand for goods that are used together, such as cars and fuel.

Competitive Demand

Demand for substitute goods that can be used in place of one another.

Derived Demand

Demand for a good that results from the demand for another good.

Perfectly Inelastic Demand

A situation where demand does not change as price changes (value of PED = 0).

Perfectly Elastic Demand

A situation where demand changes infinitely with any change in price (value of PED = ∞).

Unitary Elastic Demand

A scenario where demand changes proportionally with price changes (value of PED = 1).

Substitute Goods

Products that can replace each other; an increase in the price of one leads to an increase in demand for the other.

Complementary Goods

Goods that are often used together; an increase in the price of one will lead to a decrease in demand for the other.

Shifts of the Supply Curve

Changes in supply due to factors such as production costs, technology, and the number of firms in the market.

Perfectly Inelastic Supply

A situation where supply does not change as price changes (value of PES = 0).

Perfectly Elastic Supply

A situation where supply changes infinitely with any change in price (value of PES = ∞).