9- Price Determination Flashcards
1
Q
Market Equilibrium Definition
A
The point at which demand is equal to supply. It is also known as the market clearing price as all products will be sold at this price.
2
Q
Market Clearing Price
A
The market equilibrium price where all products will be sold as products will be sold at this price. All buyers can get exactly the amount they want to sell at this price. Therefore the market has been cleared as nothing is left over.
3
Q
What is Excess Supply?
A
- Where supply is greater than demand
- If price was to rise from equilibrium price there will be excess supply
- Buyers would demand less at the higher price but firms would wish to supply more at this price
- Firms would need to ration excess supply by lowering price.
- Signs include firms unable to shift stock
4
Q
What is Excess Demand?
A
- When demand is greater than supply.
- If price were to fall from equilibrium price there will be excess demand.
- Buyers would demand more at the lower price but firms would wish to supply less at this price
- Firms would need to ration the excess demand by increasing price
- Signs include long queues or waiting lists
5
Q
What are Market Forces?
A
Forces which always push prices towards market equilibrium
