price determination in a competitive market Flashcards
what is demand
the quantity consumers are willing and able to buy at a given price and time
what is the law of demand
as price falls Qd increases
what are the movements along a demand curve
as price changes so does quantity demanded. contractions occur when the price increases so Qd decreases. extensions are when Qd increases due to a fall in price
whats a complimentary product
a good that is consumed alongside another
whats a substitute
a good which can be used as an alternative to another
what is composite demand
demand for a good or service with more than one purpose so that when demand for one of its purposes increases, supply for the other decreases
what is derived demand
when demand for a good or service comes from the demand of another thing that it is a component of
what is the difference between consumer and market demand
consumer demand is the demand of an individual consumer whereas market demand is all consumer demand summed together
what is ceteris parabus
all other things remain constant. in the context of a demand curve its that other than price, all other factors affecting demand remain constant
what are the conditions of demand
population, income, interest rates, prices of substitutes and compliments, expectations over future prices, stage of the economic trade cycle, taxes, consumer confidence
what is ped
measures the responsiveness of demand to a change in price
formula for ped
% change in Qd / %change in price
implications of inelastic ped
a change in price leads to a less than proportional change in demand, the ped is between 0 and -1, as prices rise total revenue rises, steep line
implications of elastic ped
chnage in price leads to a greater than proprtional chnage in demand, ped of less than -1, a rise in price leads to a fall in revenue, flat curve
whats perfectly elastic
at a given price, the demand is infinite but at all other prices there is no demand. ped is infinity
