1.2.3 Markets

Question 1

equilibrium

Answer 1

(market clearing price)
-state of equality/balance between market demand & supply
D=S

Question 2

disequilibrium

Answer 2

prices where demand and supply are out of balance

Question 3

shortage in the market

Answer 3

-quantity demanded > quantity supplied (price below market equilibrium price)

-demanders = unable to buy want at going price
-too many buyers & too few sellers
respond - raising prices = quantity demanded falls = quantity supplied rises - equilibrium

Question 4

surplus in the market

Answer 4

• quantity supplied > quantity demanded (price of product above market equilibrium price)
• suppliers unable to sell at going price = cut price = demand increase = supplied decrease = prices continue to fall until reach equilibrium

Question 5

demand changes

Answer 5

demand increase :
equilibrium price higher
equilibrium quantity higher

demand decrease
equilibrium price lower
equilibrium quantity lower

Question 6

supply changes and the effect on equilibrium

Answer 6

supply increase
equilibrium price lower
equilibrium quantity higher

supply decrease
equilibrium price higher
equilibrium quantity lower

Question 7

ceteris paribus

Answer 7

assumes all other factors remain equal other than price