2.5 The Interaction of Markets Flashcards
What does Ceteris Paribus mean?
All other things being equal.
What is the equilibrium?
It is the point where the demand curve meets the supply curve.
What is the equilibrium price?
This is the only price where the amount consumers want to buy is equal to the amount producers want to sell.
What dictates the equilibrium in a free market?
The market forces, supply and demand.
What is disequilibrium?
It is when the market is not at a stable price and quantity. Economic pressure arises to move the market back towards a stable price and quantity.
When does excess demand and supply occur?
They occur at disequilibrium. The difference between the quantity demanded and quantity supplied is now the excess supply.
What is the market when there is excess demand or supply?
It is unstable. Excess supply forces producers to cut the price, excess demand will signal to producers to raise the price to increase profit.
What do demand and supply curve shifts mean?
They affect where the equilibrium is.
What does a shift in the demand curve mean?
An increase in demand will cause an increase in price. Supply will extend. A decrease in demand will cause the price to fall. Supply will contract.
What does a shift in the supply curve mean?
An increase in supply will cause a decrease in price. Demand will extend. A decrease in supply will cause an increase in price. Demand will contract.
