Market equilibrium Flashcards
What is equation to find the market equilibrium?
QD = A- BP = QS = A + BP
When does an excess supply occur?
When QS exceeds QD. There will be a surplus in the market. This is indicated by the area between the demand and supply curve at a price higher than the equilibrium price.
When does a shortage occur?
This is a situation where QD exceeds QS. This occurs when the price is lower than the equilibrium price. This is indicated by the area between the demand and supply curves at a lower price than the equilibrium price.
What is a consumer surplus?
It is the difference between the price consumers actually pay for a product and the price they are willing to pay.
It is indicated by the triangular area above the equilibrium price line and below the demand curve.
What are the effects of an increase in supply on consumer surplus?
The consumer surplus increases as an increase in supply results in lower prices.
What are the effects of a decrease in supply on consumer surplus?
The consumer surplus will fall as a decrease in supply will result in higher prices.
What is a producer surplus?
It occurs when producers sell at a higher price than they are willing to sell. It is indicated by the area below the equilibrium price line and above the supply curve.
What are the effects of an increase in demand on producer surplus?
This increases producer surplus, as a higher demand will result in higher prices.
What are the effects of a decrease in demand on producer surplus?
It will reduce producer surplus, as a decrease in demand results in lower prices.
