Chapter 4 Vocab - Equilibrium

Question 1

Define: Equilibrium price

Answer 1

The price at which the quantity demanded is equal to the quantity supplied

Question 2

Define: Equilibrium quantity

Answer 2

The quantity at which the quantity demanded is equal to the quantity supplied

Question 3

Define: surplus

Answer 3

A situation in which the quantity supplied is greater than the quantity demanded

Question 4

Define: Shortage

Answer 4

A situation in which the quantity demanded is greater than the quantity supplied

Question 5

Define: Unexploited gains from trade

Answer 5

When the quantity of goods traded is less than the equilibrium quantity

Question 6

What does a free market do to trade?

Answer 6

It maximizes the gains from trade, AKA producer + consumer surplus

Question 7

An Increase in supply ____________ price and ____________ quantity

Answer 7

Decreases, increases

Question 8

An increase in demand ____________ price and ____________ quantity

Answer 8

increases, increases