2.2 Market equilibrium Flashcards
What is disequilibrium?
prices where demand and supply are out of balance
What is equilibrium?
means a state of equality or balance between market demand and supply
What is the intersection of demand and supply called?
market clearing price
Describe the 5 steps for changing the demand or supply?
- identify initial equilibrium
- identify initial change or shift in market
- at the original equilibrium price …. identify either excess supply or demand
- as a result of excess demand/supply price of the good or service there is downward/upward pressure on price that causes a contraction/ expansion of the demand/supply curve
- new equilibrium
Shift in demand curve will occur due to chnages in?
- consumer income
- competitors
- income tax
- advertising/ marketing
Shift in supply curve will occur due to changes in?
- impact of changing costs of production
- environmental factors
- taxes (indirect, import)
- technology
What do chnages in price signal?
HIGH PRICES
to consumers: reduce demand
to producers: open markets
LOW PRICES
to consumers: enter market
producers: leave market
WHat does incentive suggest?
d
What is consumer surplus?
the differance between what a consumer is willing to pay vs what they have to pay
- measure of consumer welfare
What is producer surplus?
the differance between the market price and the price at which they are will to supply
- mearsure of producer welfare
How to you work out total benefit/ welfare of market?
consumer surplus + producer surplus
What is the loss in welfare called?
dead weight loss
