Price Determiniation Definition

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  1. Equilibrium Price
    The price where supply = demand. Also known as “Market clearing price”
  2. Excess Supply
    When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price.
  3. Excess Demand
    When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.
  4. Joint Supply
    When two goods are produced together from the same raw materials
  5. Competing Supply
    When raw materials are used to produce one good they cannot be used to produce another good
  6. Complementary goods
    A good in joint demand or a good which is demanded at the same time as the other good
  7. Substitute Goods
    A good in competing demand. Can be used in place of another good.
  8. Composite Demand
    Demand for a good that has more than one use. E.g. crops for food or biofuel
  9. Derived Demand
    Demand for a good which is an input into the production of another good.
  10. Allocative Efficiency
    When available resources are used to produce the combination of goods and services that best match people’s tastes and preferences
  11. 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.
  12. Signalling Function of Price
    Prices provide information to buyers and sellers
  13. 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.
  14. Rationing Function of Price
    Rising prices ration demand for a product
  15. 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.
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Price Determiniation Definition
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Price Determiniation Definition
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