Macroeconomic equilibrium.

Question 1

What effect would a fall in world oil prices have on an economy SRAS curve?

Answer 1

It would result in a shift to the right because it lowers costs of production.

Question 2

What happens at market equilibrium?

Answer 2

Price and output are stable and all products that are presented are sold and the market is cleared.

Question 3

What state is the market in when supply is not equal to demand?

Answer 3

The market is in disequilibrium.

Question 4

How do market forces eliminate excess supply?

Answer 4

If the price is set above the equilibrium the price will be forced down, supply will contract and demand to extend until equilibrium is reached.

Question 5

How do market forces eliminate excess demand?

Answer 5

If the price is set below the equilibrium prices will be forced up, demand will contract and supply will extend until equilibrium is reached again.

Question 6

How does elasticity effect the point of a new equilibrium?

Answer 6

PES and PED influence the size of the changes caused by demand and supply curve shifts. Since a inelastic PES or PED will have a greater impact on price than quantity and vice versa.

Question 7

What does the demand & supply model rely on in terms of assumptions?

Answer 7

Ceterius paribus.
All markets are perfectly competitive.
Supply and demand are independent of each other.