2.4 Flashcards
What is market equilibrium?
When quantity demanded is equal to quantity supplied, there is a market equilibrium. There is no tendency for the price or quantity to change.
Market equilibrium indicates a stable market condition.
Define equilibrium.
A state of balance such that there is no tendency to change.
Equilibrium can apply to various contexts in economics.
What is equilibrium price?
Price determined in the market when quantity demanded is equal to quantity supplied, and there is no tendency for the price to change.
This price is crucial for market stability.
What is equilibrium quantity?
The quantity that is bought and sold when a market is in equilibrium.
This quantity reflects consumer and producer balance.
Define competitive market equilibrium.
The equilibrium that emerges at the point where the demand curve intersects the supply curve in a free competitive market.
This occurs without government intervention.
What is excess supply/surplus?
Occurs when quantity of a good demanded is smaller than the quantity supplied.
Surpluses often lead to price reductions.
What is excess demand/shortage?
Occurs when quantity of a good demanded is greater than the quantity supplied.
Shortages can result in price increases.
What is the price mechanism?
The system where prices are determined by demand and supply in competitive markets.
It results from the free interaction of buyers and sellers.
What are the functions of the price mechanism?
- Resource allocation
- Signaling
- Incentive
- Rationing
Each function plays a vital role in how resources are distributed in an economy.
What role do prices play as signals?
Prices communicate information to decision-makers.
This helps consumers and producers make informed choices.
What role do prices play as incentives?
Prices motivate decision-makers to respond to the information.
This can influence supply and demand behaviors.
Fill in the blank: Rationing is a method of apportioning or parceling out _______.
goods and services.
Rationing can occur through various mechanisms, including pricing.
What is price rationing?
Price determines whether you get the good or not.
This suggests that affordability can limit access to goods.
