Chapter 5: Equilibrium Flashcards
What is market equilibrium?
The point where quantity demanded equals quantity supplied at the equilibrium price, or “market-clearing” price.
What is shown at the intersection of the demand and supply curves?
The equilibrium price and quantity.
What happens when there is a surplus in the market?
When price is above equilibrium, quantity supplied exceeds quantity demanded, leading to downward price pressure.
What results from a shortage in the market?
When price is below equilibrium, quantity demanded exceeds quantity supplied, leading to upward price pressure.
What are the three steps to analyze market changes?
1) Identify if the change shifts supply, demand, or both, 2) Determine the shift direction, and 3) Draw the shift to see the new equilibrium price and quantity.
What happens to equilibrium when there is a rightward shift in demand?
Both equilibrium price and quantity increase.
What effect does a leftward shift in supply have on equilibrium?
It increases the equilibrium price and decreases the equilibrium quantity.
What happens when both demand shifts right and supply shifts left?
Equilibrium price rises, but the change in quantity depends on the shift magnitudes.
What ensures markets return to equilibrium?
Price adjustments, guided by the law of supply and demand.
What is the difference between “supply” and “quantity supplied”?
Supply” refers to a shift in the entire supply curve, while “quantity supplied” is a movement along a fixed supply curve.
Why is the supply-and-demand model important?
It is essential for predicting market behavior and resource allocation.
How do price signals affect resource distribution?
They determine which consumers buy and which producers sell, helping distribute resources efficiently.
