1.2.6 - 1.2.7

Question 1

Equilibrium price

Answer 1

The price at which there is no tendency to change because planned purchases are equal to planned supply

Question 2

Excess demand

Answer 2

When demand is greater than supply - the market is in disequilibrium

Question 3

Excess supply

Answer 3

Where supply is greater than demand - the market is in disequilibrium

Question 4

Free market forces

Answer 4

Forces which act to reduce prices when there is excess supply and raise prices when there is excess demand

Question 5

Market-clearing price

Answer 5

The price where there is neither excess demand nor excess supply. This will be an equilibrium

Question 6

Shortage

Answer 6

Where not enough of a good or service is available at the current price

Question 7

Incentive function

Answer 7

When changes in price encourage buyers and sellers to change their decisions eg. a rise in price would incentivise sellers to produce more and consumers to produce less

Question 8

Rationing function

Answer 8

Where limited supply will be allocated to those most willing and able to pay a higher price and where a falling price means those will a lower willingness to pay are now able to buy

Question 9

Signalling function

Answer 9

When changes in price give information to buyers and sellers which influence their decisions to buy and sell