Competitive Markets-Key Terms

Market Normal goods Supply
Market forces Inferior goods Supply schedule
Demand Movement along the demand cure Law of supply
Derived demand Shift in demand curve Supply curve
Demand schedule Change in quantity demanded Movement along the supply curve
Demand curve Competitive Markets: Shift in supply curve
demand and supply
Key Terms
Law of demand Change in demand Determinants of supply
Law of diminishing marginal utility Extension in demand Change in quantity supplied
Determinants of demand Contraction in demand Change in supply

Supplementary or substitute goods Increase in demand Extension in supply
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Complementary goods Decrease in demand Contraction in supply
Increase in supply Market disequilibrium Implicit costs
Decrease in supply Excess demand or shortage Economic costs
Supply shocks Excess supply or surplus Accounting costs
Subsidy Change in market equilibrium Profit
Tax Consumer surplus Economic profit

Direct taxes Competitive Markets: Normal profit
demand and supply
Key Terms
Indirect taxes Producer surplus Abnormal profit or super-normal
profit
Joint supply Market efficiency Loss
Market equilibrium Marginal benefit

Equilibrium price Marginal cost
Equilibrium quantity
27-09-2018 Explicit costs
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Market
Market is a place where buyers and sellers meet to exchange goods

and services.
Market forces
Economic factors comprise of demand and supply which affects the

price and quantity of products available in the market in a given time
period.
Demand
Demand refers to various quantities of product which consumers are

willing and able to buy at various possible prices in a given time
period.
Derived demand
Demand of product which is a consequence of the demand of some

other product.
Demand schedule
Demand schedule is a tabular presentation of the to various quantities

of product which consumers are willing and able to buy at various
possible prices in a given time period. If it represents the possible
demand by an individual consumer/a firm of a particular product it is
called as individual demand schedule, while when it represents the
total demand of that product by all the individuals/firms together, it is
called as market demand schedule.
Demand curve
Demand curve is the graphical representation of various quantities of

product which consumers are willing and able to buy at various
possible prices in a given time period. Demand curve is downward
sloping.
Law of demand
Law of demand explains the relationship between price and quantity demanded
of a product in a given time period, when everything else which may affect
demand remains constant. According to the law of demand there is an inverse
relationship between price and quantity demanded of a product, ceteris paribus,
which means when the price increases quantity demanded of a product
decreases and vice-versa.
Law of diminishing marginal utility
Law of diminishing marginal utility explains the relationship between

consumption of additional unit of a product and the satisfaction
derived from the consumption of the same. According to the law of
diminishing marginal utility, the amount of satisfaction derived by
consumer keep decreasing with every additional unit of a product
consumed. It may reach to a point where an additional unit consumed
may not increase the amount satisfaction derived out of consumption
post that any further consumption may affect the satisfaction derived,
negatively.
Law of diminishing marginal utility is considered as an economic
reason behind downward sloping demand curve.
Determinants of demand
All non-price factors affecting demand are called determinants of

demand. For example: income, season, population, taste, preference,
habit etc.
Supplementary or substitute goods
Products which can be used in place of each other are called

supplementary goods. For example: tea and coffee, petrol run cars and
diesel run cars etc.
Complementary goods
Products which are used together are called complementary goods.

For example: car and petrol, transport service and hotel
accommodation etc.
Normal goods
All those goods whose demand increases with increase in income are
called normal goods. For example: demand for foreign holidays, new
car etc.
Inferior goods
All those goods whose demand increase with decrease in income and
vice-versa. For example: second hand clothes, second hand books,
customer if switch back to white bread from brown bread due to fall in
income, then white bread here is an example of inferior good.
Movement along the demand curve
When quantity demanded of a product increases or decreases due to

change in the price of product, it causes movement along the demand
curve. Movement along the demand curve can cause extension or
contraction in demand.
Shift in demand curve
When the demand of a product increases or decreases due to change

in any of the non-price factor/determinant of demand, it causes shift
in demand curve. Shift in demand curve can be rightward or leftward.
Change in quantity demanded
Change in quantity demanded of product refers to increase or

decrease in quantity demanded of product caused by decrease or
increase in price of product respectively.
Change in demand
Change in demand of product refers to increase or decrease in demand

of product caused by change in any of the non-price
factor/determinant of demand of product.
Extension in demand
Extension in demand refers to increase in quantity demanded of a

product due to fall in price of a product.
Contraction in demand
Contraction in demand refers to decrease in quantity demanded of a

product due to rise in price of a product.
Increase in demand
Increase in demand occurs due to favourable change in any of the non-

price factor/determinant of demand of product.
Decrease in demand
Decrease in demand occurs due to adverse/unfavourable change in

any of the non-price factor/determinant of demand of product.
Supply
Supply refers to various quantities of product which producers are

willing and able to provide at various possible prices in a given time
period.
Supply schedule
Supply schedule is a tabular presentation of the to various quantities

of product which producers are willing and able to provide at various
possible prices in a given time period. If it represents the possible
supply by an individual/a firm of a particular product it is called as
individual supply schedule, while when it represents the total supply
of that product by all the individuals/firms together, it is called as
market supply schedule.
Law of supply
Law of supply explains the relationship between price and quantity

supplied of a product in a given time period, when everything else
which may affect supply remains constant. According to the law of
supply there is a direct relationship between price and quantity
demanded of a product, ceteris paribus, which means when the price
increases quantity supplied of a product increases and vice-versa.
Supply curve
Supply curve is the graphical representation of various quantities of

product which producers are willing and able to provide at various
possible prices in a given time period. Supply curve id upward sloping.
Movement along the supply curve
When quantity supplied of a product increases or decreases due to

change in the price of product, it causes movement along the supply
curve. Movement along the supply curve can cause extension or
contraction in supply.
Shift in supply curve
When the supply of a product increases or decreases due to change in

any of the non-price factor/determinant of demand, it causes shift in
supply curve. Shift in supply curve can be upward or downward.
Determinants of supply
All non-price factors affecting supply are called determinants of

supply. For example: taxes or subsidies, number of firms, technology,
joint supply, role of expectation, supply shocks etc
Change in quantity supplied
Change in quantity supplied of product refers to increase or decrease

in quantity supplied of product caused by increase or decrease in price
of product, respectively.
Change in supply
Change in supply of product refers to increase or decrease in supply of

product caused by change in any of the non-price factor/determinant
of supply of product.
Extension in supply
Extension in supply refers to increase in quantity supplied of a product

due to rise in price of a product.
Contraction in supply
Contraction in supply refers to decrease in quantity supplied of a

product due to fall in price of a product.
Increase in supply
Increase in supply occurs due to favourable change in any of the non-

price factor/determinant of supply of product.
Decrease in supply
Decrease in supply occurs due to adverse/unfavourable change in any

of the non-price factor/determinant of supply of product.
Supply shocks
Sudden unpredictable changes which may affect the supply of a

product adversely or favourably are called supply shocks. For example:
change in weather condition which may affect agriculture output,
outbreak of epidemic, war, natural or artificial calamities etc
Subsidy
Subsidy is a grant given by the government to producers to decrease

their cost of production, which can have an implication of reducing the
market price of a product.
Tax
Tax are the source of government revenue. There are two types of
taxes: direct tax and indirect tax.
Direct taxes
Direct tax is tax on income and wealth of the tax payer. For example:
income tax, tax on interest income, tax on profit (corporate tax),
wealth tax, inheritance tax etc.
Indirect taxes
Indirect tax is a tax on spending. For example Goods and services tax
(GST), Excise duty, tariff or custom duty etc.
Joint supply
Product which cannot be produced independently from one another,

are considered as produced in joint supply. In other words, while
producing a particular product when essentially another one or more
products are produced, it is referred as joint supply. For example, the
refinery process for crude oil yields petroleum as well as paraffin,
lubricants and the chemical bases plastics. A rise in the supply of crude
oil results in a commensurate rise in the supply of petroleum, paraffin,
lubricants, etc.
Market equilibrium
Market equilibrium refers to a situation where quantity demanded of

a product equals quantity supplied of a product. When market is in
equilibrium there is neither excess demand nor excess supply in the
market for that product.
Equilibrium price
The price at which quantity demanded of a product equals quantity

supplied is called equilibrium price, at this price neither surplus nor
shortage exists hence it can also be referred a market clearing price.
Equilibrium quantity
When quantity demanded is equal to quantity supplied it is referred as

equilibrium quantity.
Market disequilibrium
When either excess demand exists or excess supply exists, market is

said to be in disequilibrium.
Excess demand or shortage
When quantity demanded of a product exceeds its quantity supplied,

it is called as excess demand or shortage.
Excess supply or surplus
When quantity supplied of a product exceeds its quantity demanded,

it is called as excess supply or surplus.
Change in market equilibrium
When either any of the determinant of demand or any of the

determinant of supply affect demand or supply of a product
respectively, market equilibrium position tends to change.
Consumer surplus
Consumer surplus is the difference between the maximum price which

consumer is willing and able to pay and the market price. It is the area
between the market demand curve and its equilibrium.
Producer surplus
Producer surplus is the difference between the minimum price which

producer is willing and able to accept and the market price. It is the
area between the market supply curve and its equilibrium.
Market efficiency
Market is said to efficient when it achieves both productive and

allocative efficiency. In other words, when marginal benefit is equal to
marginal cost, market achieves efficiency. When market is efficiently
allocating its resources, the sum of producer and consumer surplus is
maximum.
Marginal benefit
Marginal benefit refers to the additional benefit derived from the

additional unit consumed.
Marginal cost
Marginal cost refers to the additional incurred in production one more

unit of a product.
Explicit costs
Explicit cost refers to the cost paid to the households from outside the
business against using the resources owned by them.
Implicit costs
Implicit cost refers to the opportunity of using the resources owned by

the firm in production activities.
Economic costs
Economic cost is the sum total of explicit cost and implicit cost.
Accounting costs
Accounting cost is equal to explicit cost.
Profit
Profit refers to the positive difference between total revenue and total
cost.
Economic profit
Economic profit is the positive difference between total revenue and

economic costs.
Normal profit
When firm’s economic profit is equal to zero, it said to be making

normal profit.
Abnormal profit or super-normal profit
When firm’s economic profit is greater than zero, it said to be making

abnormal profit.
Loss
Loss refers to a negative difference between total revenue and total

cost.

Competitive Markets-Key Terms

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Competitive Markets-Key Terms

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Market Normal goods Supply

Market forces Inferior goods Supply schedule

Demand Movement along the demand cure Law of supply

Derived demand Shift in demand curve Supply curve

Determinants of demand Contraction in demand Change in supply

Decrease in supply Excess demand or shortage Economic costs

Supply shocks Excess supply or surplus Accounting costs

Subsidy Change in market equilibrium Profit

Tax Consumer surplus Economic profit

Market equilibrium Marginal benefit

Market is a place where buyers and sellers meet to exchange goods

Economic factors comprise of demand and supply which affects the

Demand refers to various quantities of product which consumers are

Demand of product which is a consequence of the demand of some

Demand schedule is a tabular presentation of the to various quantities

Demand curve is the graphical representation of various quantities of

Law of diminishing marginal utility explains the relationship between

All non-price factors affecting demand are called determinants of

Products which can be used in place of each other are called

Products which are used together are called complementary goods.

When quantity demanded of a product increases or decreases due to

When the demand of a product increases or decreases due to change

Change in quantity demanded of product refers to increase or

Change in demand of product refers to increase or decrease in demand

Extension in demand refers to increase in quantity demanded of a

Contraction in demand refers to decrease in quantity demanded of a

Increase in demand occurs due to favourable change in any of the non-

Decrease in demand occurs due to adverse/unfavourable change in

Supply refers to various quantities of product which producers are

Supply schedule is a tabular presentation of the to various quantities

Law of supply explains the relationship between price and quantity

Supply curve is the graphical representation of various quantities of

When quantity supplied of a product increases or decreases due to

When the supply of a product increases or decreases due to change in

All non-price factors affecting supply are called determinants of

Change in quantity supplied of product refers to increase or decrease

Change in supply of product refers to increase or decrease in supply of

Extension in supply refers to increase in quantity supplied of a product

Contraction in supply refers to decrease in quantity supplied of a

Increase in supply occurs due to favourable change in any of the non-

Decrease in supply occurs due to adverse/unfavourable change in any

Sudden unpredictable changes which may affect the supply of a

Subsidy is a grant given by the government to producers to decrease

Product which cannot be produced independently from one another,

Market equilibrium refers to a situation where quantity demanded of

The price at which quantity demanded of a product equals quantity

When quantity demanded is equal to quantity supplied it is referred as

When either excess demand exists or excess supply exists, market is

When quantity demanded of a product exceeds its quantity supplied,

When quantity supplied of a product exceeds its quantity demanded,

When either any of the determinant of demand or any of the

Consumer surplus is the difference between the maximum price which

Producer surplus is the difference between the minimum price which

Market is said to efficient when it achieves both productive and

Marginal benefit refers to the additional benefit derived from the

Marginal cost refers to the additional incurred in production one more

Implicit cost refers to the opportunity of using the resources owned by

Accounting cost is equal to explicit cost.

Economic profit is the positive difference between total revenue and

When firm’s economic profit is equal to zero, it said to be making

When firm’s economic profit is greater than zero, it said to be making

Loss refers to a negative difference between total revenue and total

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