3.5 The Determination Of Equilibrium Market Price Flashcards
What is market equilibrium?
The point where the supply and demand curve of the graph
What is equilibrium?
A state of reset or balance between opposing forces
What is disequilibrium?
A situation in which opposing forces are out of balance
In a market what are the opposing forces
-supply
-demand
What is market equilibrium?
Planned demand=planned supply(where the demand crosses the supply curve)
What is market disequilibrium
-exists at any other price other than the equilibrium price
Planned demand > planned supply
Or planned demand <planned supply
In market disequilibrium what happens when planned demand < planned supply?
The price falls
In market disequilibrium what happens when planned demand >planned supply?
Price rises
What is the difference between the economic agents on the short side and long side of the market?
The economic agents on the short side can fulfil their goals, the economic agents on the long side cannot
What is excess supply?
When firms wish to sell more than consumers are willing to buy (price above the equilibrium price)
What is excess demand?
When consumers want to buy more than firms are willing to sell(price below the equilibrium price)
What changes a market from being at equilibrium?
An external event hits the market and causes a shift in the supply or demand curve
Describe the new equilibrium if the supply curve is shifted to the right?(for tomatoes)
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
What type of good are tomatoes?
A normal good
Describe the new equilibrium of the demand cover shifts to the right?
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
The more elastic the demand what happens in expenditure tax?
The tax is passed onto consumers as a price rise
What is the expenditure tax by unit measured by?
Vertical distance between s1(pre tax) and s2(post tax)
Why can’t the consumer raise the price as high as they want to as a result of an expenditure tax?
Due to the excess supply
What is the part of the tax shifted to consumers called?
Shifted incidence of tax
What is the part of the expenditure tax bore by the producers called?
Unshifted incidence
How does the elasticity diagrams show the firms ability to pass tax onto the consumers?
-greatest when demand is completely inelastic
-non-existent when demand is completely elastic
What does a an increase of tax do for difference types of goods demand curves?
Normal good:shift left
Inferior good :shift right
What are the there types of auctions at which an item can be sold?
-ascending-bid auctions
-descending bid auctions
-first price sealed bid auctions
What are ascending bid auctions?
(English auctions)
-seller gradually raises price until bidders drop out and one remains
What are descending bid auctions?
(Dutch auctions)
-price frankly decreased until the first moment when a bidder accepts and pays the current price
What are first price sealed bid auctions?
-bidders submit simultaneous ‘sealed bids’ to the seller and the highest bidder wins the object and pays that price
How does the price mechanism allocate scarce resources….
By changing he market price to eliminate excess supply or demand
market equilibrium diagram
effect of excess supply on market equilibrium diagram
reduces price
effect of excess demand on market equilibrium diagram
price increase
what is shifted incidence?
the extent to which an indivudual or organisation suffers from the imposition of a tax
shifting the incidence of a tax when demand is price elastic diagram
