Topic 3 - Price Determination In A Competitive Market Flashcards
Demand
The amount of a good or service that consumers are willing and able to buy at any given price
Law of Demand
As the price of a product falls the demand of the product will usually increase
Income Effect
When a product falls in price people will have an increase in disposable income - being able to buy more
Substitution Effect
When the price falls, the product becomes more attractive than competitor products, so people change their purchasing habits and opt for cheaper products
Determinants of Demand
Price of the good, Consumer income, Price of other goods and services, Consumer tastes and fashion, and other factors e.g advertising
Conspicuous Consumption
The spending of money on and Acquiring of luxury goods and services to publicly display economic power - of the income or of the accumulated wealth of the buyer
Veblen Goods
Higher price = Higher demand. Buying a price for its reputation, often at a high markup
Giffen Good
Where demand goes up as price does, and falls as it goes down. These are essential goods such as rice, potatoes and wheat. Demand stays high when prices increase because there is no ready substitute.
Inferior Good
A good where demand decreases as income increases
Utility
Measuring of satisfaction we get from purchasing and consuming a good or service
Total Utility
Total satisfaction from a given level of consumption
Marginal Utility
The change in satisfaction from consuming an extra unit
Diminishing Marginal Returns
The marginal utility of extra units declines as more is consumed
Composite Demand
Where goods have more than one use - an increase in the demand for one product leads to a fall in supply of the other
Non price factors affecting supply
Availability of factors, Technology, Taxes, Subsidies, Weather and natural factors
