3.5 The Determination Of Equilibrium Market Price

Question 1

What is market equilibrium?

Answer 1

The point where the supply and demand curve of the graph

Question 2

What is equilibrium?

Answer 2

A state of reset or balance between opposing forces

Question 3

What is disequilibrium?

Answer 3

A situation in which opposing forces are out of balance

Question 4

In a market what are the opposing forces

Answer 4

-supply
-demand

Question 5

What is market equilibrium?

Answer 5

Planned demand=planned supply(where the demand crosses the supply curve)

Question 6

What is market disequilibrium

Answer 6

-exists at any other price other than the equilibrium price

Planned demand > planned supply
Or planned demand <planned supply

Question 7

In market disequilibrium what happens when planned demand < planned supply?

Answer 7

The price falls

Question 8

In market disequilibrium what happens when planned demand >planned supply?

Answer 8

Price rises

Question 9

What is the difference between the economic agents on the short side and long side of the market?

Answer 9

The economic agents on the short side can fulfil their goals, the economic agents on the long side cannot

Question 10

What is excess supply?

Answer 10

When firms wish to sell more than consumers are willing to buy (price above the equilibrium price)

Question 11

What is excess demand?

Answer 11

When consumers want to buy more than firms are willing to sell(price below the equilibrium price)

Question 12

What changes a market from being at equilibrium?

Answer 12

An external event hits the market and causes a shift in the supply or demand curve

Question 13

Describe the new equilibrium if the supply curve is shifted to the right?(for tomatoes)

Answer 13

Too many tomatos at offer for this price so there is excess supply in the market

-firms reduce the price to increase demand and get rid of excess supply creating a lower equilibrium price

Question 14

What type of good are tomatoes?

Answer 14

A normal good

Question 15

Describe the new equilibrium of the demand cover shifts to the right?

Answer 15

Rightward shift creates excess demand in the market

-market adjustment mechanism gets rid of excess demand by increasing the price to establish a new equilibrium of a higher price

Question 16

The more elastic the demand what happens in expenditure tax?

Answer 16

The tax is passed onto consumers as a price rise

Question 17

What is the expenditure tax by unit measured by?

Answer 17

Vertical distance between s1(pre tax) and s2(post tax)

Question 18

Why can’t the consumer raise the price as high as they want to as a result of an expenditure tax?

Answer 18

Due to the excess supply

Question 19

What is the part of the tax shifted to consumers called?

Answer 19

Shifted incidence of tax

Question 20

What is the part of the expenditure tax bore by the producers called?

Answer 20

Unshifted incidence

Question 21

How does the elasticity diagrams show the firms ability to pass tax onto the consumers?

Answer 21

-greatest when demand is completely inelastic
-non-existent when demand is completely elastic

Question 22

What does a an increase of tax do for difference types of goods demand curves?

Answer 22

Normal good:shift left
Inferior good :shift right

Question 23

What are the there types of auctions at which an item can be sold?

Answer 23

-ascending-bid auctions
-descending bid auctions
-first price sealed bid auctions

Question 24

What are ascending bid auctions?

Answer 24

(English auctions)

-seller gradually raises price until bidders drop out and one remains

Question 25

What are descending bid auctions?

Answer 25

(Dutch auctions)

-price frankly decreased until the first moment when a bidder accepts and pays the current price

Question 26

What are first price sealed bid auctions?

Answer 26

-bidders submit simultaneous ‘sealed bids’ to the seller and the highest bidder wins the object and pays that price

Question 27

How does the price mechanism allocate scarce resources….

Answer 27

By changing he market price to eliminate excess supply or demand

Question 28

market equilibrium diagram

Answer 28

Question 29

effect of excess supply on market equilibrium diagram

Answer 29

reduces price

Question 30

effect of excess demand on market equilibrium diagram

Answer 30

price increase

Question 31

what is shifted incidence?

Answer 31

the extent to which an indivudual or organisation suffers from the imposition of a tax

Question 32

shifting the incidence of a tax when demand is price elastic diagram

Answer 32