Price Determiniation Definition

The price where supply = demand. Also known as “Market clearing price”

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

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

When two goods are produced together from the same raw materials

When raw materials are used to produce one good they cannot be used to produce another good

A good in joint demand or a good which is demanded at the same time as the other good

A good in competing demand. Can be used in place of another good.

Demand for a good that has more than one use. E.g. crops for food or biofuel

Demand for a good which is an input into the production of another good.

When available resources are used to produce the combination of goods and services that best match people’s tastes and preferences

For the economy as a whole it is when it is impossible to produce one good without producing less of another. For a firm it is when the average total cost of production is minimized.

Prices provide information to buyers and sellers

Process create incentives for people to alter their economic behavior, for example, a higher price creates an incentive for firms to supply more of a good or service.

Rising prices ration demand for a product

Changing relative prices to allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demand.