2.5 the interaction of markets

Question 1

what is it called when supply is equal to demand?

Answer 1

equilibrium

Question 2

how does a shortage in the market occur?

Answer 2

when price is below the market equilibrium causing an expansion in demand and a contraction in supply.

Question 3

how does excess supply occur in a market?

Answer 3

when price is above the equilibrium so there is a contraction in demand and an expansion in supply.

Question 4

what causes price and output volatility?

Answer 4

-weather- changed in weather and extreme weather can impact output in the agricultural industry
-commodity markets
speculation-these can be traded and therefore affect prices due to demand and supply

Question 5

what is a limitation to the demand and supply model?

Answer 5

in real life, consumers and producers do not have perfect information and they do not always act rationally like the model suggests.