1.3.5 The determination of equilibrium market prices Flashcards
market at state of equilibrum =
= when QD = QS
Market will cintinue to be in a state of quilibrum until
one of the conditions of demand or supply changes
equilibrum diagram
market disequilibrum
excess supply
if price is above market equilibrum
QS exceeds QD
market disequilibrum
excess demand
price below market equilibrum
QD exceeds QS
market disequilibrum
market forces definition
aka market mechanism
the interaction of forces of supply and demand
market disequilibrum
eventutally market forces will lead to…
excess supply or damnd being solved
market disequilibrum
case of excess supply =
firms forced to reduce prices, leading to contraction along supply curve + extention along demand curve
market disequilibrum
case of excess demand =
= firms able to increase prices, leading to extention along supply curve + contraction of demand - eliminating excess demand and restoring equilibrum
market dis
market disequilibrum occours when
QD does not equal QS
changes in equilibrum price
increase in D
rightward shift of D curve + increase in equilibrum price and quanitity
changes in equilibrum price
decrease in D
leftward shift of D curve, decrease in equilibrum price and quanitity
changes in equilibrum price
increase in S
lead to rightward shift of supply curve + decrease in equilibrum price and increase in quanity
changes in equilibrum price
decrease in S
lead to leftward shift of S curve + increase in eqil price + decrease in quanitity
