Topic 3: Markets                    

TERM

DEFINITION

Ceiling prices

A maximum price set by a government authority in a market where supplies are short relative to demand .The aim is to prevent profiteering.

Competition

A contest for command over scare resources. In a market this involves buyers and sellers.

Demand

The quantity of a product that consumers will be willing to purchase at a certain price, at a particular point in time.

Elastic

A change in price brings about a more than proportional change in quantity demanded or supplied. In the case of elastic demand a rise in the price leads to a fall in the total revenue of the firm.

Elasticity

A measure of the extent to which a change in one variable brings about a change in another, ie. it is a measure of 'responsiveness to change', such as the responsiveness of quantity to a change in price.

Externalities

Cost or benefits caused by the activities of an  industry, which are not reflected in the price at which the product is sold, or influence the quantities purchased; cost not borne by those who occasion them, and benefits not paid for by the recipients.

Floor prices

This is a minimum price set by a government authority. It is designed to provide producers with a minimum income for their production, such as an agriculture price support scheme.

Inelastic

A change in price brings about a less than proportional change in quantity demanded or supplied. In the case of inelastic demand a rise in the price leads to an increase in the total revenue of the firm.

Market disequilibrium

The situation in the market where the quantity demanded does not equal the quantity supplied at a particular price.

Market equilibrium

The price at which supply and demand are equated. At any price above the equilibrium price supply will exceed demand, and at any price below equilibrium, demand will exceed supply.

Market failure

The inability of an unregulated market to achieve allocative efficiency in all circumstances.

Market power

The ability of a firm to behave persistently in a manner which was different from that of a firm facing the same demand and cost conditions but operating in different competitive markets. The firm is able to have greater control over price or output than in a competitive market.

Market structure

The number and relative size of firms in an industry, the ease with which firms can enter the industry, and the extent of product differentiation.

Monopolistic competition

A market structure in which a relatively large number of small producers or suppliers offer similar but not identical products.

Monopoly

A market situation in which a single firm is the sole producer of a commodity for which there is no close substitute.

Non-price competition

Competitive actions used by producers to attract additional customers without having to lower prices. These include advertising, providing additional services, quality of product, and attractive packaging.

Oligopoly

A market situation consisting of a few sellers of a standardised product, eg. steel, cement, glass.

Product differentiation

Attempts to create differences between products of a similar nature, eg. washing powders, by introducing brand names, variation in preparation and presentation, and by skilful advertising.

Public goods

Goods whose benefit can be shared by many without loss to any individual, and from whose benefit it is not easy to exclude people, eg. street lights.

Pure competition

A market situation based upon the following assumption:

(a) There are a large number of buyers and sellers, each acting independently.

(b) No buyer or seller can influence the price by his actions alone.

(c) There is a homogeneous product.

(d) There is freedom of entry to and exit from the market.

Relative price

The ratio of the price of one good to the price of another.

Supply

The quantity of goods or services or services that sellers are prepared to place on the market at given price per unit of time.

Total outlay method

A measurement of elasticity, involving multiplying price times quantity. If the total outlay increases, when the price rises, the product has inelastic demand in that range. If the total outlay is constant the elasticity of demand is unitary and if total outlay falls, it is elastic.

Unit elasticity

A change in price brings about a  proportional change in quantity demanded or supplied. In the case of unitary elastic demand a rise in the price leads to no change in the total revenue of the firm.