Price determination in a competitive market

Question 1

Market

Answer 1

Market: a situation in which buyers and sellers come together to engage in trade.

Question 2

Competitive market

Answer 2

Competitive market: a situation where there is a large number of potential buyers and sellers with abundant information about the market.

Question 3

Equilibrium price

Answer 3

Equilibrium price: the price at which the planned demand of consumers equals the planned supply of firms.

Question 4

Demand

Answer 4

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

Question 5

Effective demand

Answer 5

Effective demand: consumers’ desire to buy a good, backed up by the ability to pay.

Question 6

law of demand

Answer 6

The law of demand states that as the price of a good or service falls, the quantity demanded increases.

Question 7

Price elasticity of demand

Answer 7

Price elasticity of demand refers to the responsiveness of the quantity demanded of a good or service to a change in its price. The formula is stated as:

Question 8

calculating PED

Answer 8

%Qd/%P