Ch. 4 - Equilibrium

Question 1

What are Planned Economies?

Answer 1

Centralized decisions are made about what is produced, how, by whom, and who gets what

Question 2

What are Market Economies?

Answer 2

Each individual makes their own production & consumption decisions, buying & selling in markets

Question 3

What is a Market?

Answer 3

A setting bringing together potential buyers and sellers

Question 4

What is Equilibrium?

Answer 4

The point at which there is no tendency for change. A market is in equilibrium when the quantity supplied equals the quantity demanded (market clears)

Question 5

What is Equilibrium Price? What is Equilibrium Quantity?

Answer 5

Equilibrium Price - The price at which the market is in equilibrium

Equilibrium Quantity - The quantity demanded and supplied in equilibrium

Question 6

What is a Shortage? What is a Surplus? How do each effect the price?

Answer 6

Shortage - When quantity demanded exceeds the quantity supplied

Surplus - When quantity demanded is less than the quantity supplied

• Shortages lead the price to rise
• Surpluses lead the price to fall

Question 7

How does a Shift in Demand Affect Equilibrium?

Answer 7

↑ Quantity Demanded = ↑ Price, ↑ Quantity Supplied
↓ Quantity Demanded = ↓ Price, ↓ Quantity Supplied

Question 8

How does a Shift in Supply Affect Equilibrium?

Answer 8

↑ Quantity Supplied = ↓ Price, ↑ Quantity Demanded
↓ Quantity Supplied = ↑ Price, ↓ Quantity Demanded