Lesson 8 - Market Equilibrium Flashcards
1
Q
What happens in a market when there is no government intervention?
A
prices and outputs are controlled by the demand of consumers and supply of produces
2
Q
What is equilibrium?
A
supply and demand are equal
3
Q
What is disequilibrium?
A
above or below the point where supply and demand are equal
4
Q
What is the aim of the price mechanism?
A
match up demand and supply in order to clear the market
5
Q
What do you expect firms or consumers to do when there is excess supply?
A
- firms lower prices in order to clear stock
- new equilibrium is found
6
Q
What do you expect firms or consumers to do when there is excess demand?
A
- consumers bid up prices
- high prices incentivise producers to supply more
- new equilibrium is found at the demand price level
