1.2.6 Price Determination Flashcards
1
Q
What is equilibrium, in terms of demand and supply
A
a state of equality/balance between market demand and supply
2
Q
What a equilibrium price on a supply and demand graph
A
Where both supply and demand intersect another on a graph It represent a trade off, of the buyer and the seller
3
Q
What can lead to a change in equilibrium
A
A shift in either the demand or supply curve
4
Q
What is excess demand?
A
- Quantity demanded exceeds excess supply available
- When market prices are set below the equilibrium
- Result in queuing and upward pressure on price
5
Q
What is excess supply
A
- When supply is greater than demand, so there are unsold goods - price is too high
- Surpluses put downward pressure on market prices
- As prices fall, there is an extension in demand which cuts surplus and takes the market toward equilibrium
- Higher prices decrease demand to consumers with effective demand
6
Q
What removes excess demand
A
- Upward pressure on price
- Could cause prices to increase, leading to an expansion in supply
- New equilibrium is formed
7
Q
What removes excess supply
A
- Excess supply puts pressure to make the market price fall
- As prices fall, there is an expansion in demand (shifts left) which removes surplus and creates a new equilibrium
- Higher prices decrease demand to consumers with effective demand (change in income and change in demand)
