Chapter 5

Question 1

What is market equilibrium

Answer 1

a situation that occurs in a market when the price is such that the quantity demanded by consumers is exactly balanced by the quantity supplied by firms. Where the demand and supply line intercept

Question 2

What is excess supply

Answer 2

a quantity that firms are willing and able to supply exceeds the quantity consumers wish to demand at the going price. (price is too high)

Question 3

What is excess demand

Answer 3

When the quantity that consumers wish to demand at the going price exceeds the quantity that firms are willing and able to supply. (price is too low)

Question 4

When the market has an excess supply or excess demand we call this?

Answer 4

Disequilibrium

Question 5

Price convergence to equilibrium in a …. market

Answer 5

Free market - due to natural market forces

Question 6

What are substitute goods

Answer 6

2 goods that are substitutes for each other, if the price of 1 falls the demand will rise for it and decrease for the substitute good

Question 7

What are complement goods

Answer 7

Goods that are usually consumed together, such as a knife and fork