2.4 The interaction of supply and demand Flashcards
Define the term “Equilibrium”
When market forces of supply and demand meet each other.
Define the term “Disequilibrium”
A situation where demand and supply are not equal in a market.
Define the term “Equilibrium Price”
The price where demand and supply are equal, where the market clears.
Define the term “Equilibrium quantity”
The amount that is traded at the equilibrium price.
Define the term “Changes in demand or supply”
When there is a shift in the demand or supply curve due to a change in factors other than the price of a product.
What are the causes of shifts in demand curve?
- The income/ability to pay for a product.
- The price and availability of substitutes and complements.
- Fashion, tastes, and attitudes.
What influences someone’s ability to pay for a product?
- The purchasing power of their income after personal taxation.
- The availability of loans or credit and the interest rate that must be paid on loans or credit card balance.
Define the term “Excise duties”
A specific tax that is levied on goods such as cigarettes.
Define the term “ad valorem tax”
A tax that is charged as a given percentage of the price of a product.
Define the term “Incentive”
Where low or high prices influence consumption and production by encouraging buyers to consume and sellers to produce.
Define the term “Free-market”
Any place where buyers meet suppliers to exchange goods and services free from government intervention.
What are the 4 price mechanisms?
- Signals price too high/low
- Incentives to change price
- Rations excess demand/supply
- Allocates scarce resources
Define the term “Market Mechanism”
This is the means by which demand and supply determine the price and quantity of goods or services.
