Market Equilibrium

Question 1

Market equilibrium

Answer 1

The intersection of demand and supply curves, where the price and quantity satisfy both the consumer and the producer

Question 2

Market forces

Answer 2

Supply and demand forces which automatically lead to equilibrium

Question 3

What will changes in supply or demand do?

Answer 3

Create a new equilibrium price and quantity

Question 4

Price mechanism

Answer 4

The forces of supply and demand which allow us to see how scarce resources are allocated

Question 5

What are the three functions of prices?

Answer 5

To signal information to consumers and producers, to ration scare resources and to give incentives to consumers and producers

Question 6

Consumer surplus

Answer 6

The extra satisfaction that consumers gain due to the price they pay being less than what they were willing to pay

Question 7

Producer surplus

Answer 7

The excess in earnings that the producers receive above what they were willing to receive for a given quantity

Question 8

Allocative efficiency

Answer 8

When consumer and producer surplus is maximised

Question 9

Community surplus

Answer 9

Sum of consumer and producer surplus

Question 10

Marginal social benefit

Answer 10

Benefit to society