Determination of Equilibrium Market Prices Flashcards
1
Q
Market Equilibrium Definition
A
The point at which demand is equal to supply.
2
Q
Market Clearing Price Definition
A
The price at which demand is equal to supply, so the entirety of the stock will be sold.
3
Q
How Excess Supply Occurs
A
Increase in prices mean firms produce more, increasing supply, however consumers buy less as it is more expensive, so demand decreases.
4
Q
How Excess Demand Occurs
A
Lower prices mean firms produce less, as it is a less profitable product, reducing supply, however, consumers buy more as it is a cheaper product, so demand increases.
5
Q
Market Disequilibrium Definition
A
When there is an imbalance in the quantity demanded and quantity supplied of a product.
