Equilibrium Flashcards
1
Q
What is a free market?
A
Any market free from government intervention
2
Q
What is the price mechanism?
A
The system through which the forces of demand and supply interact to determine market price for goods and services
3
Q
How the price mechanism works
A
Allocate scarce resources efficiently
Ration scarce resources efficiently / discouraging consumption
Signal excess demand / supply and need to increase / decrease resources
Incentivise producers to increase / decrease output to increase profit.
4
Q
What does excess demand cause?
A
Price rises
5
Q
What does excess supply cause?
A
Prices fall
6
Q
Right shift in demand causes…?
A
Price rises : What happens to ARSI
7
Q
Right shift in supply causes…?
A
Price falls : What happens to ARSI
