chapter 4: equilibrium Flashcards
what are the two types of economy?
planned and market economy
what is a planned economy?
centralized decisions are made about what is produced, how, by whom, and who gets what
what is a market economy?
each individual makes their own production and consumption decisions, buying and selling in markets
what does equilibrium mean?
the point at which there is no tendency for change. a market is in equilibrium when the quantity supplied equals the quantity demanded
when qd(p) = qs(p)
where the supply and demand curve intersect
what is equilibrium quantity?
the quantity demanded and supplied in equilibrium
represented by q*
what is equilibrium price?
the price at which the market is in equilibrium
represented by p*
when is there a shortage?
if the quantity demanded exceeds the quantity supplied
when is there a surplus?
the quantity demanded is less than the quantity supplied
what does the height of demand represent?
the WTP
what way do p and q shift with demand shifters?
the same direction
what will happen to the equilibrium if there is an increase in demand?
an increase in demand causes an increase in both equilibrium price and quantity
what will happen to the equilibrium if there is a decrease in demand?
a decrease in demand causes a decrease in both equilibrium price and quantity
what way do p and q shift with supply shifters?
in opposite directions
what will happen to the equilibrium if there is an increase in supply?
increase in quantity and decrease in price
what will happen to the equilibrium if there is a decrease in supply?
decrease in quantity and increase in price
