Chapter 5 - Competitive Market Equilibrium

Question 1

Price mechanism

Answer 1

The interaction between buyers and sellers in the free market in order to allocate resources

Question 2

Signalling function

Answer 2

Aspect of price mechanism: Allocates resources by providing information to consumers and producers where resources are required and where it is not required

Question 3

Incentive function

Answer 3

Aspect of price mechanism: when price changes, it acts as an incentive for consumers and producers to change their behaviour in order to maximise their benefits

Question 4

Rationing function

Answer 4

Deters some consumers from buying a product due to high prices

Question 5

Consumer surplus

Answer 5

When consumers get to purchase products at a price lower than that which they are willing and able to pay

Question 6

Producer surplus

Answer 6

Gain/benefits to firms that receive prices higher than the price they are willing and able to supply it at

Question 7

Social surplus

Answer 7

The sum of consumer and producer surplus