2.5 INTERACTION OF MARKETS Flashcards
what is equilibrium
a situation in which price has reached the level where quantity supplied equals quantity demanded
what’s equilibrium price
the price that balances quantity supplied and quantity demanded
what’s equilibrium quantity
the quantity supplied and quantity demanded at the equilibrium price
what can the equilibrium also be called
market clearing price
what is surplus
the situation that results when the quantity supplied of a product exceeds the quantity demanded.
what is shortage
the situation that results when the quantity demanded for a product exceeds the quantity supplied
what are the 4 sections of the price mechanism
- allocate
- rationing
- signalling
- incentives
allocate
allocating scarce resources among competing uses
rationing
prices serve to ration scarce resources when market demand outstrips supply
signalling
prices adjust to demonstrate where resources are required and where theyre not
incentives
when the price of a product rises, quantity supplied increases as a businesses respond
joint demand
an increase in demand for one good will see an increase in demand for a complimentary good
competitive demand
an increase in the price of one good will see an increase in demand for a substitute good
derived demand
an increase in demand for one good will see an increase in the derived demand for another good
composite demand
an increase in demand for one good will see a decrease in the availability of resources for alternative uses
