9) Equilibrium & Excess Demand And Supply

Question 0

What is an equilibrium price

Answer 0

The orice which demand is equal to supply

Question 1

What is a market

Answer 1

Where consumers and produces meet to exchange goods and services

Question 2

What is excess demand

Answer 2

⚫️if prices are too low
➡️demand will be greater than supply
➡️shortages may occur

Question 3

What is excess supply

Answer 3

⚫️if price too high
➡️supply is greater than demand
➡️surplus may occur

Question 4

⚫️if a floral teddy
➡️set at £15 demand equal to 500 teddies
➡️supply would be 200
➡️what would happen

Answer 4

⚫️excess demand of 300 teddies

➡️shortage

Question 5

If price of teddy set at
➡️£30 demand will equal 200
➡️supply 500
➡️what would happen

Answer 5

⚫️excess supply of 300 teddies

➡️surplus

Question 6

What does price mechanism mean

Answer 6

Use the prices to manipulate supply and demand

➡️and to move the market equilibrium

Question 7

How would you clear the market if there is an excess demand of 300 teddies

Answer 7

⚫️raise the prices
➡️increases supply
➡️as higher price signals for produces to enter market
➡️ration demand due to the income effect
➡️called price mechanism

Question 9

How would you clear the market if there is excess supply of 300 teddies

Answer 9

⚫️producers will have to lower prices
➡️decrease in supply
➡️as lower prices signals producers to leave market

➡️consumers will increase demand
➡️due to income effect of lower prices
➡️this is called price mechanism