1.6 Markets

Question 1

Equilibrium price and market clearing

Answer 1

. The equilibrium price is where consumer demand matches producer supply.
. At this price, there’s no excess demand or supply—known as the market-clearing price.

Question 2

Total revenue calculation

Answer 2

= price (P) x quantity (Q)

Question 3

Shifts in demand

Answer 3

. An increase in demand shifts the demand curve to the right, raising the equilibrium price and quantity.
. A decrease in demand shifts it to the left, reducing the equilibrium price and quantity.

Question 4

Shorts in supply

Answer 4

. Increase in supply shifts the supply curve rightward, lowering price and raising quantity.
. Decrease in supply shifts it leftward, raising price and lowering quantity.

Question 5

Simultaneous Changes in Supply and Demand:

Answer 5

If demand increases and supply decreases simultaneously, price rises. The quantity outcome depends on the degree of each shift.

Question 6

Desiquilibrium

Answer 6

. Excess Demand: Price below equilibrium causes demand to exceed supply, creating shortages.
. Excess Supply: Price above equilibrium causes supply to exceed demand, resulting in unsold stock.