Key Terms 3 - Price Determination in a Competitive Market

Question 1

Market

Answer 1

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

Question 2

Ruling Market Price

Answer 2

The price at which planned demand for a good or service exactly equals planned supply.

Question 3

Demand

Answer 3

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

Question 4

Effective Demand

Answer 4

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

Question 5

Individual Demand

Answer 5

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

Question 6

Market Demand

Answer 6

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

Question 7

Competitive Markets

Answer 7

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

Question 8

Supply

Answer 8

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

Question 9

Condition of Demand

Answer 9

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

Question 10

Increase in Demand

Answer 10

A rightward shift of the demand curve.

Question 11

Decrease in Demand

Answer 11

A leftward shift of the demand curve.

Question 12

Normal Good

Answer 12

A good for which demand increases as income rises and demand decreases as income falls.

Question 13

Inferior Good

Answer 13

A good for which demand decreases as income rises and demand increases as income falls.

Question 14

Elasticity

Answer 14

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

Question 15

Price Elasticity of Demand

Answer 15

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

Question 16

Income Elasticity of Demand

Answer 16

Measures the extent to which the demand for a good changes in response to a change in income; it is calculated by dividing the percentage change in quantity demanded by the percentage change in income.

Question 17

Cross-Elasticity of Demand

Answer 17

Measures the extent to which the demand for a good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in quantity demanded by the percentage change in the price of another good.

Question 18

Complementary Goods

Answer 18

When two goods are complements, they experience joint demand.

Question 19

Substitute Goods

Answer 19

Alternate goods that could be used for the same purpose.

Question 20

Market Supply

Answer 20

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.

Question 21

Condition of Supply

Answer 21

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

Question 22

Increase in Supply

Answer 22

A rightward shift of the supply curve.

Question 23

Decrease in Supply

Answer 23

A leftward shift of the supply curve.

Question 24

Price Elasticity of Supply

Answer 24

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

Question 25

Equilibrium

Answer 25

A state of rest or balance between opposing forces.

Question 26

Disequilibrium

Answer 26

A situation in which a market when there is excess supply or excess demand

Question 27

Market Equilibrium

Answer 27

A market is in equilibrium when planned demand equals planned supply and the demand curve crosses the supply curve.

Question 28

Market Disequilibrium

Answer 28

Exists at any price other than the equilibrium price: either excess demand or excess supply exists within the market.

Question 29

Excess Demand

Answer 29

When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.

Question 30

Excess Supply

Answer 30

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

Question 31

Joint Supply

Answer 31

When one good is produced, another good is also produced from the same raw materials, perhaps as a by-product.

Question 32

Composite Demand

Answer 32

Demand for a good which has more than one use, which means that an increase in demand for one use of the good reduces the supply of the good for an alternative use. It is related to the concept of competing supply.

Question 33

Derived Demand

Answer 33

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

Question 34

Short Run

Answer 34

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

Question 35

Long Run

Answer 35

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