1.2.3 markets and equilibrium

Question 1

Commodity markets

Answer 1

Commodity markets are
markets for undifferentiated
products, generally raw
materials such as gold,
crude oil or rice.

Question 2

Equilibrium

Answer 2

Equilibrium describes a
situation in a market where
supply and demand are
balanced, making the price
stable.

Question 3

In commodity markets, price is determined simply by the interaction of
supply and demand. Simply stated:

Answer 3

• If demand is higher than supply, the price of the product will rise, until
demand falls back to the level of supply.
• If supply is higher than demand, price will fall, stimulating more
demand to ensure that all that is supplied is sold. What is happening is that price adjusts until demand and supply are in
equilibrium. This is the natural state for all markets in which price is
determined simply by demand and supply.

Question 4

Effect on price if Demand curve moves to the right (rises)

Answer 4

Price will move up

Question 5

Effect on price if Demand curve moves to the left (falls)

Answer 5

Price will move down

Question 6

Effect on price if Demand curve moves to the left (falls)

Answer 6

Price will move up

Question 7

Effect on price if Supply curve moves to the right (rises)

Answer 7

Price will fall

Question 8

Equilibrium tutor2u

Answer 8

A market is said to be in equilibrium when where is a balance between demand and supply. If something happens to disrupt that equilibrium (e.g. an increase in demand or a decrease in supply) then the forces of demand and supply respond (and price changes) until a new equilibrium is established.

Question 9

Disequilibrium

Answer 9

Equilibrium means a
state of equality or
balance between
market demand and
market supply
• Prices where demand
and supply are out of
balance are called
points of disequilibrium