market equilibrium Flashcards
what is market equilibrium
a situation that occurs in a market when the price is such that the quantity demanded by consumers is exactly balanced with the quantity supplied by firms
what is excess supply
a situation in which the quantity that firms are willing and able to supply exceeds the quantity that consumers wish to demand at the going price.
what is excess demand
a situation in which the quantity that consumers wish to demand at the going price exceeds the quantity that firms are willing and able to supply.
what are the four factors that change market equilibrium
a change in consumer preferences
a change in the price of a substitute
an improvement in technology
an increase in labour costs
give an example of how consumer preferences affect market equilibrium
if an article is published with the health benefits of pasta - likely increase in demand - the market adjusts to a new equilibrium - if demand increases there will be an extension of supply to eliminate excess demand
explain how a fall in price of a substitute will affect the market equilibrium
a fall in the price of a substitute - causes demand to shift - the market now adjusts to a new equilibrium - there has been a contraction of supply in response to the excess supply
explain how an improvement in technology affects market equilibrium
a technical advance reduces firms costs - they are willing to supply more at any cost - supply curve shifts - the market now adjusts to new equilibrium - there’s an extension of demand
explain how an increase in labour costs will affect market equilibrium
an increase in labour costs - producers supply less - supply curve shifts - the market now adjusts to a new equilibrium - a contraction in demand to eliminate excess demand.
