The price where supply = demand. Also known as Market clearing price
Excess Supply
When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price.
Excess Demand
When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.
Joint Supply
When two goods are produced together from the same raw materials
Competing Supply
When raw materials are used to produce one good they cannot be used to produce another good
Complementary goods
A good in joint demand or a good which is demanded at the same time as the other good
Substitute Goods
A good in competing demand. Can be used in place of another good.
Composite Demand
Demand for a good that has more than one use. E.g. crops for food or biofuel
Derived Demand
Demand for a good which is an input into the production of another good.
Allocative Efficiency
When available resources are used to produce the combination of goods and services that best match peoples tastes and preferences
Productive Efficiency
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.
Signalling Function of Price
Prices provide information to buyers and sellers
Incentive Function of Price
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.
Rationing Function of Price
Rising prices ration demand for a product
Allocative Function of Price
Changing relative prices to allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demand.