Interaction of supply and demand Flashcards
What defines a market in economics?
A market exists when buyers and sellers come together, with demand curves showing buyer behavior and supply curves showing seller behavior.
What is market equilibrium?
Market equilibrium occurs when the quantity of a good demanded equals the quantity supplied at a certain price.
What is excess supply?
Excess supply exists when the quantity of a good firms are prepared to supply exceeds the quantity consumers are willing to buy at a given price.
What is excess demand?
Excess demand exists when the quantity of a good consumers are prepared to buy exceeds the quantity suppliers are willing to sell at a given price.
What is a price ceiling?
A price ceiling is a government-set maximum price below equilibrium, often causing shortages.
What is a price floor?
A price floor is a government-set minimum price above equilibrium, often causing surpluses.
What happens when demand increases?
An increase in demand raises the equilibrium price and increases the quantity supplied.
What happens when demand decreases?
A decrease in demand lowers the equilibrium price and reduces the quantity supplied.
What happens when supply increases?
An increase in supply lowers the equilibrium price and increases the quantity demanded.
What happens when supply decreases?
A decrease in supply raises the equilibrium price and reduces the quantity demanded.
How do non-price factors affect market equilibrium?
Changes in non-price factors like income or preferences shift demand or supply, creating a new equilibrium price and quantity.
Why does a surplus occur with increased supply?
A surplus occurs when supply increases but the price does not immediately adjust, forcing prices down and increasing demand to find a new equilibrium.
What causes a shortage in the market?
A shortage occurs when demand exceeds supply at a given price, often caused by price ceilings or increased demand.
How do consumer and producer behaviors interact during a demand increase?
Consumers compete, driving up prices, while producers supply more at the higher price, creating a new equilibrium.
What is the effect of a demand decrease on suppliers?
Suppliers reduce prices to sell excess stock, leading to lower quantities supplied and a new, lower equilibrium price.
