Lecture 5

Question 1

Describe what market Equilibrium is

Answer 1

Equilibrium is a situation in which opposing forces balance each other.
Equilibrium in a market occurs when the price balances the plans of buyers
and sellers.
(when the graphs intercept)

Question 2

What is equilibrium price

Answer 2

The equilibrium price is the price at which the quantity demanded equals the
quantity supplied

Question 3

What is equilibrium quantity

Answer 3

The equilibrium quantity is the quantity bought and sold at the equilibrium
price

Question 4

Describe a surplus

Answer 4

At prices above the
equilibrium price, a
surplus forces the price
down. (the product is too expensive and not being sold)

Question 5

Describe a shortage

Answer 5

At prices below the
equilibrium price, a
shortage forces the price
up. (demand is very high, people will pay more)

Question 6

Is there a shortage or surplus at equilibrium price?

Answer 6

Neither. At the equilibrium price, buyers’ plans and sellers’ methods agree, and the price doesn’t change until an event changes demand or supply.

Question 7

what happens when demand decreases?

Answer 7

-Price decreases
-quantity supplied decreases
-curve shifts leftward
-at OG price there is a surplus

Question 8

What happens when demand increases

Answer 8

-increase in price
-increases in quantity supplied
-curve shifts rightward
-at OG price there is now a shortage

Question 9

What happens when supply increases?

Answer 9

-Price decreases
-quantity increases
-curve shifts rightward
-at OG price, there is now a surplus

Question 10

What happens when supply decreases

Answer 10

-price increases
-quantity demanded decreases
-curve shifts leftward
-at OG price, there is now a shortage

Question 11

What happens when both supply and demand increase?

Answer 11

-increases equilibrium quantity
* the change in equilibrium price is uncertain because the increase in demand raises the price and the increase in supply lowers it*

Question 12

What happens when demand and supply decrease?

Answer 12

-decreases equilibrium quantity
* price is uncertain because a decrease in demand lowers price and a decrease in supply raises price*

Question 13

What happens when demand decreases and supply increases?

Answer 13

-lowers equilibrium price
-change in equilibrium quantity is uncertain

Question 14

What happens when demand increases and supply decreases?

Answer 14

• raises equilibrium price
  -change in equilibrium quantity is uncertain