4.1.3 Price Determination in a Competitive Market Flashcards
(13 cards)
Demand
The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.
Law of demand
As price falls, quantity demanded rises (ceteris paribus)
Supply
The quantity of a good or service that producers are willing and able to sell at a given price in a given time period.
Law of supply
As price rises, quantity supplied increases (ceteris paribus).
Equilibrium price
The price at which quantity demanded equals quantity supplied.
Excess demand
When quantity demanded is greater than quantity supplied at a given price (shortage).
Excess supply
When quantity supplied is greater than quantity demanded at a given price (surplus).
Price mechanism
The way price responds to changes in supply or demand to signal and allocate resources.
Consumer surplus
The difference between the price a consumer is willing to pay and the price they actually pay.
Producer surplus
The difference between the price a producer is willing to accept and the price they actually receive.
Elasticity
A measure of the responsiveness of one variable to a change in another.
Price elasticity of demand (PED)
The responsiveness of quantity demanded to a change in price.
Price elasticity of supply (PES)
The responsiveness of quantity supplied to a change in price.
