Ch. 5 - Demand, Supply and Equilibrium

Question 1

Define Equilibrium price

Answer 1

The price at which the quantity supplied of a good, service or resource equals the quantity demanded; the price at which the demand and supply curves intersect. Also know as market clearing price

Question 2

Define equilibrium quantity

Answer 2

The quantity traded when the quantity supplied of a good/service equals its quantity demanded

Question 3

Define a shortage

Answer 3

A situation in which the quantity demanded is greater than the quantity supplied at the current market price, called excess demand

Question 4

Define a surplus

Answer 4

A situation in which the quantity supplied is greater than the quantity demanded at the current market price. Also called excess supply

Question 5

What is the equation for shortage

Answer 5

shortage = Qs - Qd < 0

Question 6

What is the equation for surplus

Answer 6

surplus = Qs - Qd > 0

Question 7

Shortages put ______ pressure on price

Answer 7

upward

Question 8

Surpluses put ________ pressure on price

Answer 8

downward

Question 9

What are shortages the product of typically?

Answer 9

Product of price controls that don’t allow markets to adjust or of unforseen events that disrupt supply (like natural disasters)

Question 10

How are shortages or surpluses denoted?

Answer 10

By horizontal distance between the quantity demanded and the quantity supplied