Chapter 6- Markets

Question 1

Equilibrium price

Answer 1

The price where supply and demand are equal

Equilibrium price is also known as market clearing price because the amount supplied in the market is completely bought up by consumers. There are no buyers left without goods and there are no sellers left with unsold stock. The market is cleared.

If demand rises, prices will fall – this is because producers react to rising consumer trends by putting up their prices. The reverse will happen if demand falls, as producers are forced to lower their prices or risk being left with too much unsold stock

Question 2

Changes in supply and demand together

Answer 2

It is possible that both supply and demand could change at the same time – for example if supply decreased while demand increased, prices would increase yet the quantity on a graph would shift to the right.

Question 3

Disequilibrium

Answer 3

If the price in a particular market is not set at the point where price and demand are equal, there will be disequilibrium in the market. Two situations might occur:

Question 4

Excess demand

Answer 4

The position where demand is greater than supply at a given price and there are shortages in the market

Question 5

Excess supply

Answer 5

The position where supply is greater than demand at a given price and there are unsold goods in the market