2.3 Competitive Market Equilibrium

Question 1

market equilibrium

Answer 1

the point at which the quantity demanded of a good or service by consumers equals the quantity supplied by producers, resulting in a stable market price.

Question 2

equilibrium price (market price)

Answer 2

the price at which the quantity demanded of a good or service by consumers equals the quantity supplied by producers in the market.

Question 3

market clearing

Answer 3

the condition in which the quantity supplied of a good or service equals the quantity demanded at the equilibrium price, resulting in no excess supply or excess demand.

Question 4

excess demand

Answer 4

occurs when the quantity demanded for a good or service exceeds the quantity supplied at a GIVEN price, leading to upward pressure on prices.

Question 5

shortage

Answer 5

a situation where the quantity demanded of a good or service exceeds the quantity supplied at a SPECIFIC price, resulting in unmet consumer demand.

Question 6

excess supply

Answer 6

occurs when the quantity supplied of a good or service exceeds the quantity demanded at a GIVEN price, leading to downward pressure on prices.

Question 7

surplus

Answer 7

a situation where the quantity supplied of a good or service exceeds the quantity demanded at a SPECIFIC price, resulting in unsold inventory.

Question 8

shift of supply/demand curve

Answer 8

occurs when a non-price determinant changes, resulting in a new demand or supply relationship at every price level.

Question 9

market mechanism (price mechanism)

Answer 9

the process by which the forces of demand and supply interact to determine the equilibrium price and quantity of a particular good or service in a competitive market. This system relies on price signals to allocate resources efficiently, as changes in demand or supply affect prices, which in turn influence the behavior of consumers and producers.

Question 10

competitive market

Answer 10

a market with many firms acting independently where no firm has the ability to control the price. Firms are assumed to be price takers as they are too small to have an impact on
the market price.

Question 11

market

Answer 11

any structure that allows buyers and sellers to engage in the exchange of goods, services, or resources. It is characterised by the interaction of supply and demand, which determines the price and quantity of goods and services traded. Markets can be physical (like a local farmer’s market) or virtual (like an online marketplace), and they can vary in scope from local to global.