2.3 COMPETITIVE MARKET EQUILIBRIUM

Question 1

Equilibrium

Answer 1

State of balance, where two opposing forces are equally matched.

Question 2

Market Equilibrium

Answer 2

Occurs when the supply curve of a good or service crosses the demand curve.

Question 3

Equilibrium Price

Answer 3

The price at which the quantity demanded of a good is equal to the quantity supplied.

Question 4

Disequilibrium

Answer 4

As markets move with supply and demand shifting, the market experiences disequilibrium. (Qd does not equal Qs, usually temporary.)

Question 5

Surplus

Answer 5

When the quantity supplied is greater than the quantity demanded.

Question 6

Shortage

Answer 6

When the quantity demanded is greater than the quantity supplied.

Question 7

Price Mechanisms

Answer 7

As price changes, the free market corrects itself using a system of negative feedback (price mechanisms) consisting of signals and incentives.

Question 8

Signaling

Answer 8

Introduces negative feedback into the market system by communicating what consumers and producers should do. Then stakeholders respond and bring the market back into equilibrium.

Question 9

Incentives

Answer 9

Introduces negative feedback into the market system by providing financial motivation to consumers and producers. Causes them to react in a way to bring the market back into equilibrium.

Question 10

Rationing

Answer 10

Controlled distribution of resources. During times of severe scarcity where individuals are willing but not able to purchase bar necessities due to dramatic shortages, the government may step in.

Question 11

Consumer and Producer Surplus

Question 12

Allocative Efficiency

Answer 12

The ideal combination of goods and services in a society. Results in the maximum possible surplus at equilibrium.

Question 13

Failure of Allocative Efficiency

Answer 13

Failure to reach allocative efficiency results in a welfare loss.
Not producing at equilibrium means there is a surplus loss.