Equilibrium Flashcards
What is excess Demand and excess supply
Excess Demand - quantity demanded exceeds quantity supplied
Excess Supply - quantity supplied exceeds quantity demanded
What is the law of price adjustment?
The change that will happen in price measurement in order to bring the quantities to equilibrium which clears the market.
What will happen when there is excess supply
The price will fall as sellers are frustrated they cant sell al of their inventory and will be incentivized to cut prices
What will happen if there is excess demand
Prices will rise as buyers are frustrated that they cant buy as much as theyd like to which will incentivize sellers to produce more and charge more
What is consumer surplus
The difference between price paid by consumers and the price that they are willing to pay - they are paying less than they would potentially
What is a producer surplus
The difference between price sold by producers and the price that they are willing so sell at - they are selling for higher than they would be willing to
How do prices convey information about scarcity
Prices signal what is in abundance and what is scarce - if flour is becoming scarcer then bread prices will rise
