Chapter 5: The interaction of markets Flashcards
Define market equilibrium
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
Define excess supply
A situation in which the quantity that firms are willing and able to supply exceeds the quantity that consumers wish to demand at the going price
Draw a diagram illustrating both excess supply and excess demand
Figure 5.3
Define excess demand
A situation in which the quantity that consumers wish to demand at the going price exceeds the quantity that firms are willing and able to supply
How would you describe excess demand or excess supply?
Disequilibrium in the market
How do you identify the market equilibrium
By bringing demand and supply together
In a free market, what can natural forces be expected to do?
Encourage prices to adjust to the equilibrium level
Draw a diagram illustrating a change in consumer preferences
Figure 5.5
Draw a diagram illustrating a change in the price of a substitute
Figure 5.6
Draw a diagram illustrating the effect of new technology
Figure 5.7
Draw a diagram illustrating an increase in labour costs
Figure 5.8
What will affect the size of consumer and producer surplus?
A change in the conditions of demand or supply
Draw a diagram illustrating consumer and producer surplus with an increase in demand
Figure 5.9
How can the way in which markets respond to changes in market conditions be explored?
By comparing market equilibrium before and after positions
What determines the overall effect on equilibrium price and quantity traded?
The size and direction of the shifts of the demand and supply curves
