chp 9! Flashcards
Equilibrium price
The price where demand and supply are equal
When is a market in equilibrium
Where demand and supply are equal. This is often referred to as the market clearing price giving an equilibrium price and an equilibrium quantity or sales
When is a market in disequilibrium
When demand and supply are not equal. When there is excess supply or excess demand in a market
Disequilibrium
A situation where demand and supply are not equal
In 2017, it was reported that the Ivory Coast, one of the main producers of cocoa beans, had produced a record crop resulting in a surplus of 400 000 tonnes.
Explain why this will result in disequilibrium in the market.
Describe how the market is likely to return to equilibrium.
The diagram shows that there will be excess supply in the market for cocoa beans.
Price of cocoa beans (S)
i Where there is a surplus, producers will lower the price until the market clears with demand once again being equal to supply.
When is a market in equilibrium?
A market is in equilibrium when demand and supply are equal
Why does the market ‘clear’ when in equilibrium?
When in equilibrium market clears since there is no reason for the price or quantity to change
Explain excess demand and excess supply, and why these lead to disequilibrium in a market.
Excess demand when the quantity demanded outstrips the quantity supplied
Excess supply when the quantity supplied is greater than the quantity demanded
Both of these situations lead to disequilibrium in the markets since demand and supply are not equal
The demand for chicken meat in China continues to increase faster than supply.
i Explain why the market is in disequilibrium.
“ Analyse how the excess demand for chicken will be eliminated.
‘I Discuss whether or not producers or consumers benefit from the market being in disequilibrium.
The market is in disequilibrium because the quantity demanded is not equal to the quantity supplied. OQ, is demanded but only OQ, is supplied at price P
The excess demand is shown by the distance
BA on the diagram. The excess demand will be eliminated if supply increases - this can be shown by a shift to the right to point A, resulting in the market now being in equilibrium.
ii When there is excess demand, producers benefit since they can increase supply. If they continue to restrict supply, price is likely to increase. Consumers will only benefit if, with the increase in supply, price remains at P, When the market is in disequilibrium, they are not able to buy all of the chicken they would like to purchase.
When would a market clear
When the amount consumers demand is equal to the amount that is supplied
A market is experiencing excess supply. What will happen to price and supply as the market moves back to equilibrium
Price decrease
Supply fall
