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April 22, 2018 

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WILLINGNESS TO PAY: The price or dollar amount that someone is willing to give up or pay to acquire a good or service. Willingness to pay is the source of the demand price of a good. However, unlike demand price, in which buyers are on the spot of actually giving up the payment, willingness to pay does not require an actual payment. This concept is important to benefit-cost analysis, welfare economics, and efficiency criteria, especially Kaldor-Hicks efficiency. A related concept is willingness to accept.

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INDETERMINANT:

The directional change in a variable, resulting from the disruption of an equilibrium that is identified using comparative statics, is not known. This term is commonly used to indicate that the change in either price or quantity is unknown when the market experiences simultaneous shifts in both the demand and supply curves. For example, an increase in both demand and supply definitely cause an increase in the quantity exchanged. But whether the market price increases or decreases is indeterminant.
In some economic models, especially the market model, simultaneous disruptions caused by two or more ceteris paribus factors can generate either known changes or unknown changes in endogenous variables. In those cases where the disruption produces a known change in the direction of the variable (increase or decrease), the change is said to be determinant. In those cases where the disruption does not produce a known change in the direction of a variable (it might increase or it might decrease) the change is said to be indeterminant.

Indeterminant Results

ShiftQuantity
Change
Price
Change
Demand and
Supply Increase
Determinant
(Increase)
Indeterminant
Demand and
Supply Decrease
Determinant
(Decrease)
Indeterminant
Demand Increase
and Supply Decrease
IndeterminantDeterminant
(Increase)
Demand Decrease
and Supply Increase
IndeterminantDeterminant
(Decrease)
Indeterminant results are most often associated with the market model. The simultaneous change in demand and supply, triggered by changes in a demand determinant and a supply determinant, causes the change in either price or quantity to be indeterminant.

The table presented at the right summarizes the indeterminant (and determinant) changes in price and quantity for simultaneous shifts of the demand and supply curves.

Need to Know More

The reason for an indeterminant price or quantity is that the relative magnitude of the shifts of the two curves is unknown. For most introductory comparative static analyses of the market, the only information known is something like "demand decreases and supply increases." HOW MUCH each curve shifts is not often known!

If the relative magnitudes of the two shifts are known, then both price and quantity can be determinant. Moreover, with enough information (such as, demand and supply elasticity coefficients) the exact changes in price and quantity can be calculated. Without such information, however, simultaneous shifts of the demand and supply curves mean either price or quantity is indeterminant.

<= INCREASING RETURNS TO SCALEINDEX OF CONSUMER SENTIMENT =>


Recommended Citation:

INDETERMINANT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: April 22, 2018].


Check Out These Related Terms...

     | determinant | demand and supply increase | demand and supply decrease | demand increase and supply decrease | demand decrease and supply increase |


Or For A Little Background...

     | comparative statics | ceteris paribus | economic analysis | graphical analysis | variables | demand curve | supply curve | equilibrium | equilibrium price | equilibrium quantity | market equilibrium | demand determinants | supply determinants | change in demand | change in supply |


And For Further Study...

     | demand shock | supply shock | demand increase | demand decrease | supply increase | supply decrease | price ceiling | price floor |


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