Price determination in a competitive market

Question 1

what is a market

Answer 1

a situation where buyers and sellers come together to engage in trade (doesn’t have to be in a physical location, with e-commerce now playing an increased important role in the exchange of goods and services)

Question 2

what is a competitive market

Answer 2

a situation where there are a large number of potential buyers and sellers with abundant information about the market
(all individually powerless to influence the ruling market price = equilibrium price)

Question 3

what is equilibrium price

Answer 3

the price at which the planned demand of consumers = the planned supply of firms (determined by the interactions if market demand and market supply)

Question 4

what is demand

Answer 4

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

Question 5

what is market demand

Answer 5

sum of all consumers

Question 6

what are economists concerned with (what is effective demand)

Answer 6

concerned with effective demand, consumers desire to buy a good backed up with ability to buy

Question 7

what is individual demand

Answer 7

quantity that you want

Question 8

what is the law of demand

Answer 8

that price is inversely proportional to demand
when price increases then demand decreases
when price decreases then demand increases

Question 9

what do you do when analysing change in demand

Answer 9

when analysing effects of a change in price on quantity demanded we assume ceteris paribus

Question 10

what is ceteris paribus

Answer 10

assumption that/ assume all other possible determinants of demand are held constant

Question 11

draw a market demand curve (movement)

Question 12

what happens with a movement along a demand curve

Answer 12

an increase in demand (resulting from a decrease in price) with lead to an extension of demand
a decrease in price (resulting from an increase in price) will lead to a contraction in demand

Question 13

what are the factors affecting demand

Answer 13

PASIFIC
population, advertisement, substitute goods, income, fashion/trends, interest rates, complementary goods

Question 14

what is population

Answer 14

size,age,gender composition of the population will affect the market size for many products

Question 15

what is advertisement

Answer 15

advertising

Question 16

what is prices of substitute goods

Answer 16

substitute products: a good that may be consumed as an alternative to another good, these are in competitive demand that may be seen as close alternatives to a particular good or service

Question 17

what is real disposable incomes

Answer 17

the incomes of individuals after the effects of inflation, taxation and benefits are taken into account

Question 18

what is taxation

Answer 18

a charge placed by the government on various forms of economic activity, most taxes are on forms of incomes and types of spending

Question 19

what is fashion and trends (tastes and preferences)

Answer 19

the popularity of goods and services = influence by changes in society’s preferences, influenced by the media, ads , technological change

Question 20

what is interest rates

Question 21

what is prices of complementary products (complementary goods)

Answer 21

a good that tends to be consumed together with another good, these are in joint demand (demanded together with other goods and services)

Question 22

what would happen if any of these factors change

Answer 22

if any of these factors changes then the demand curve for the good or service in question will change either rightward shift (increase in demand) or leftward shift (decrease in demand) of the demand curve

Question 23

draw a market demand curve (with shifts)

Question 24

what does a rightward shift in demand mean

Answer 24

greater quantity of a good or service is demand at any given price

Question 25

what does a leftward shift in demand mean

Answer 25

lower quantity of a good or service is demanded at any given price

Question 26

what are the conditions of supply

Answer 26

factors (other than price) that lead to a change in position of a supply curve (PPPTT)