Chapter 2: Competitive markets and how they work

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Market
where or when buyers and sellers meet to trade or exchange products
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Sub-market
a recognised and distinguished part of a market. Also known as a market segment
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Demand
the quantity of products that consumers are willing and able to purchase at various prices of a period of time
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Notional demand
the desire for a product
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Effective demand
the willingness and ability to buy a product
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Ceteris paribus
(Latin: other things being equal) assuming that all other variables remain unchanged
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Demand curve
this shows the relationship between the quantity demand and the price of a product
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Demand schedule
the data that is used to draw the demand curve for a product
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Movement along the demand curve
this is in response to a change in the price of a product
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Consumer surplus
the extra amount that consumers are willing to pay for a product above the price that is actually paid
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Disposable income
income after taxes on income have been deducted and state benefit have been added
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Real disposable income
income after taxes on income have been deducted and state benefits have been added on and the result has been adjusted to take into account changes in the price level
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Normal goods
goods for which an increase income leads to an increase in demand
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Inferior goods
goods for which an increase in income leads to a decrease in demand
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Substitutes
competing goods
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Compliments
goods for which there is a joint demand
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Change in demand
this is where a change in a non price factor leads to an increase or decrease in the demand for a product
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Producer surplus
the difference between the price a producer is willing to accept and what is actually paid
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Change in supply
occurs when a change in a non price factors leads to an increase or decrease in the willingness of a producer to supply a product
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Price
the amount of money that is paid for a given amount of a particular good or service
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Equilibrium price/Clearing price
the price where demand and supply are equal
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Equilibrium quantity
the quantity that is demanded and supplied at the equilibrium price
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Disequilibrium
any position in the market where demand and supply are not equal
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Surplus
an excess of supply over demand
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Shortage
an excess of demand over supply
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Elasticity
the extent to which buyers and seller respond to a change in market conditions
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Price Elasticity of demand
the responsiveness of the quantity demanded to a change in the price of a product
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Price elastic
where the percentage in the quantity demanded is sensitive to a change in price. The demand is elastic when the value is greater than one
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Price inelastic
where the percentage change in the quantity demanded is insensitive to a change in price. The demand is inelastic when the value is less than 1
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Income elasticity of demand
the responsiveness of demand to a change in income
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Normal goods
goods with a positive income elasticity of demand. Normal goods will give you positive values. Normal good can be put into sub categories , we can distinguish between basic goods and luxuries.
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Income inelastic
goods for which a change in income produces less than proportionate change in demand
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Income elastic
goods for which a change in income produces a greater proportionate change in demand
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Inferior goods
goods for which an increase in income leads to a fall in demand. Inferior goods will give negative values
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Cross elasticity of demand
the responsiveness of demand for one product in relation to a change in the price of another product. Substitutes will have a positive value. Compliments will have a negative value. The further away from zero the stronger the relation
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Price elasticity of supply
the responsiveness of the quantity supplied to a change in the price of a product. PES will be positive as both the bottom and the top of the formula will be either both positive or negative
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Efficiency
where the best use of resources is made for the benefit of consumers
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Allocative efficiency
where the consumer satisfaction is maximised
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Basic normal goods
have an income elasticity between 0 and 1
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Luxury normal goods
have an income elasticity greater than 1
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Giffen goods
A special sort of inferior goods. The consumption of some goods such as bread and potatoes goes up as the price increases. These are staple foods and are for low income consumers
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Card 2

Front

a recognised and distinguished part of a market. Also known as a market segment

Back

Sub-market

Card 3

Front

the quantity of products that consumers are willing and able to purchase at various prices of a period of time

Back

Preview of the back of card 3

Card 4

Front

the desire for a product

Back

Preview of the back of card 4

Card 5

Front

the willingness and ability to buy a product

Back

Preview of the back of card 5
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