Chapter 10- how prices are fixed

Question 1

Equilibrium

Answer 1

is the price at which quantity supplied and quantity demanded are equal in a market.

Question 2

DISEQUILIBRIUM: Excess supply

Answer 2

this occurs when the quantity supplied is greater than the quantity demanded. This would be caused by setting a price that is too high to attract enough customers to buy the quantity that suppliers are offering.

Question 3

DISEQUILIBRIUM: Excess demand

Answer 3

this occurs when the quantity demanded is greater than supplied. Raising the price will cause customers to buy less and so restore the equilibrium

Question 4

profit signalling mechanism

Answer 4

refers to the way that potential profits will attract entrepreneurs to growing market; losses will lead businesses to consider leaving a market. This process shifts resource use towards the products that are most in demand.

Question 5

ceteris paribus

Answer 5

other things being equal