Chapter 3 - EQ Flashcards
MARKET EQUILIBRIUM
when markets work well – > the quantity supplied exactly EQUALS the quantity demanded
(GRAPHICALLY) MARKET EQUILIBRIUM
this convergence of supply w/ demand = happens at the point where the demand curve = intersects the supply curve
EQUILIBRIUM PRICE
the price at this point
EQUILIBRIUM QUANTITY
quantity at this point
INTERSECTION OF MARKET EQ
where quantity supplied equals quantity demanded – > as the point at which buyers & sellers = agree on the quantity of a good they are willing to exchange at a given price.
MARKET-CLEARING PRICE
because every seller = finds a buyer @ the equilibrium price & quantity, and no one = left standing around w/ extra goods / an empty shopping cart
How does a market reach equilibrium?
do sellers know intuitively what price to charge?
–> No. instead they tend to set prices by trial & error OR by past experience w/ customers
–> The incentives buyers & sellers face = will naturally drive the market toward equilibrium –> as sellers raise or lower their prices in response to customers’ behavior
(SURPLUS) EXCESS QUANTITY SUPPLIED
when the quantity supplied = higher than the quantity demanded
–> Manufacturers = stuck holding extra phones in their warehouse –> they want to sell that stock & must reduce the price to attract more customers
–> They have an incentive to keep lowering the price until quantity demanded = increases to reach quantity supplied
(SHORTAGE) EXCESS QUANTITY DEMANDED
when the quantity demanded = higher than the quantity supplied
–> Producers = will see long lines of people waiting to buy the few available cell phones & will quickly realize that they could make more money by charging a higher price
–>They have an incentive to increase the price until quantity demanded decreases to equal quantity supplied –> and no one is left standing in line