Market equilibrium

Question 1

Market equilibrium

Answer 1

All products presented for sale are sold. There is a balance in the market and supply=demand. Supply and demand deterring price and quantity in a free market (one without government intervention). Can be used for a whole market or individual firms

Question 2

Disequilibrium

Answer 2

Supply isnt equal to demand

Question 3

Excess supply-Market disequilibrium

Answer 3

This occurs when price is above equilibrium. QS>QD. To clear inventory, firms will reduce their price and at a lower price, consumers will be encouraged to buy at that price so QD will rise until equilibrium is met

Question 4

Excess demand- Market disequilibrium

Answer 4

This occurs when price is below equilibrium. QS<QD. Firms will increase the price to maximise profits and increase QS to meet a higher QD. Higher prices will see less consumers buying so QD is reduced until equilibrium is met.