4.1.3.5 The determination of equilibrium market prices

Question 1

Market equilibrium

Answer 1

The point where demand is equal to supply

Question 2

Define equilibrium price

Answer 2

the price at which the quantity of a good demanded in a given time period equals the quantity supplied

Question 3

Define excess demand

Answer 3

When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.

Question 4

Define excess supply

Answer 4

When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price.

Question 5

What are free market forces?

Answer 5

Forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand

Question 6

What is a market-clearing price?

Answer 6

The price at which there is neither excess demand nor excess supply but where everything offered for sale is purchased

Question 7

What is an equilibrium?

Answer 7

A state of rest or balance between opposing forces

Question 8

What is a disequilibrium?

Answer 8

When there is a state of imbalance between opposing forces. This is a situation in a market where there is excess supply or demand