1.2.6 Flashcards
In a free market, what determines equilibrium price and quantity?
Supply and demand.
What’s excess supply?
When;
Quantity supplied > Quantity demanded
How do you show excess supply on a diagram?
Page 26 of CGP book
What’s excess demand?
When the quantity demanded in a market is bigger than the quantity supplied .
How do you show excess demand on a diagram?
Page 26 of CGP book
What two things have to occur for the market to be in disequilibrium?
- When demand doesn’t equal supply
- When there’s excess demand or supply
What do market forces do when there’s excess supply?
The price would be forced down as supply contracts and demand extends until equilibrium.
What do market forces do when there’s excess demand?
The price would be forced up as demand would contract and supply to extend until equilibrium.
When there’s price inelastic supply or demand what does it affect more;
Price or quantity?
Price.
When there’s price elastic supply or demand what does it affect more;
Price or quantity?
Quantity
