Kognity Ch. 1.1.5 - Market equilibrium

Question 1

What is the equilibrium price?

Answer 1

Equilibrium price is the price at which the quantity demanded of a good is equal to the quantity supplied, so that there are no surpluses nor shortages of the good at that price. This is also called the market-clearing price, as everything that is offered at that price is sold.

Question 2

What is the equilibrium quantity?

Answer 2

The quantity demanded/supplied at the equilibrium price (qd = qs so value will be equal)

Question 3

What is excess supply?

Answer 3

Excess supply is the situation where, at a price that is above the equilibrium price, the quantity demanded of a good is less than the quantity supplied, producing a surplus in the market (and causing a disequilibrium of X units).

Question 4

What is excess demand?

Answer 4

Excess demand is the situation where, at a price that is below the equilibrium price, the quantity demanded of a good is greater than the quantity supplied, producing a shortage in the market (and causing a disequilibrium of X units).

Question 5

In which situations can we have a fall in equilibrium quantity?

Answer 5

Decrease in demand (e.g. fur)

Decrease in supply (e.g. cacao)

Question 6

In which situations can we have a rise in equilibrium quantity?

Answer 6

Increase in demand (e.g. plane tickets - FIFA)

Increase in supply (e.g. tomatoes)