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

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2
Q

What is equilibrium?

A

supply and demand are equal

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3
Q

What is disequilibrium?

A

above or below the point where supply and demand are equal

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4
Q

What is the aim of the price mechanism?

A

match up demand and supply in order to clear the market

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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
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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
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