Market equilibrium Flashcards
1
Q
What is the market equilibrium
A
when demand = supply
2
Q
What happens at a price above and below the equilibrium price
A
Below means excess demand
Above means excess supply
3
Q
How do the price mechanisms solve excess demand
A
- Excess demand is seen through long cues and empty shelves
- This pushes the price up
- This signals to firms that they need to increase supply and output
- Higher prices discourages consumption, decreasing demand
(other way around for excess supply)
