equilibrium Flashcards
what is equilibrium?
a state of rest, self perpetuating in (as a result of) the absence of any outside disturbance. - stillness
what is excess supply?
excess supply is also known as a surplus. It is when the quantity demanded is less than the quantity supplied.
what is excess demand?
excess demand is also known as a shortage. It is when the quantity demanded is more than the quantity supplied.
when is there excess supply?
the quantity demanded is less than the quantity supplied at the given price.
This is also called a surplus. So, basically if and when the price is too high, sellers will have leftovers.
more products than people.
When is there excess demand?
occurs when the Price of a good is lower than the Equilibrium Price,
meaning more consumers will want to buy the good than suppliers are willing to sell.
more people than products.
What do we need to do to get back to equilibrium?
If you have a surplus (more supply than demand) once you lower the price of your product, your product’s quantity demanded will rise until equilibrium is reached. Therefore, surplus drives price down.
If the market price is below the equilibrium price (more demand than supply - shortage), quantity supplied is less than quantity demanded, creating a shortage - you could fix this by setting the price of goods higher which would allow you to produce more for the customers.
what is the equalibrium price?
It is the price in which the quantity supplied =(is equal to) the quantity demanded.
Why does a market always refind equilibrium?
If the price rises too high, market forces will incentivize sellers to come in and produce more. If the price is too low, additional buyers will bid up the price. These activities keep the equilibrium level in relative balance over time.
This means that suppliers will produce a greater quantity than consumers are willing to purchase, resulting in a surplus. The surplus puts downward pressure on the market price, which causes it to drop back toward the equilibrium price.
