3.1.10 the effect of change in supply and demand on equilibrium prices and quantity traded

Question 1

list the non-price factors that shift the demand curve and market equilibrium

Answer 1

• changes in disposable income
• changes in fashion and tastes
  -changes in demographics
  -changes in interest rates
  -changes in the price complementary goods
  -changes in the price of substitutes
  -changes in the levels of consumer confidence
  -changes in the season
  -changes in government policies

Question 2

define equilibrium

Answer 2

when quantity demanded exactly equals the quantity supplied, and there is neither a market surplus or a market shortage

Question 3

what happens when the price is set above the equilibrium where supply exceeds demand

Answer 3

surplus, glut or oversupply

Question 4

what happens when the price is set above the equilibrium, creates a situation where demand exceeds supply.

Answer 4

shortage or undersupply

Question 5

how does the market tend to move towards an equilibrium naturally.

Answer 5

-price will be at some level

-price remain at this point unless there is a change in demand or supply

-this creates a temporary disequilibrium where price is either too high or too low -shortage or surplus

-consumers and producers will then change their behaviour in response to disequilibrium