Market Equilibrium Flashcards
What causes a market shortage?
A market shortage is created when actual price (AP) of a commodity is less than the equilibrium price; therefore, quantity supplied is less than quantity demanded at AP (e.g., rent controls).
Describe the results of a change in market demand (only) on equilibrium.
Increase in market demand = Demand curve shifts up and to the right; Decrease in market demand = Demand curve shifts down and to the left;
Increase in market demand w/no change in supply = Increase in both equilibrium price and equilibrium quantity;
Decrease in market demand w/no change in supply = Decrease in both equilibrium price and equilibrium quantity.
Define “market equilibrium price”.
Price at which the quantity of a commodity supplied is equal to the quantity of that commodity demanded;
The intersection of the market demand and supply curves.
What causes a market surplus?
A market surplus is created when actual price (AP) of a commodity is more than the equilibrium price; therefore, quantity supplied is more than quantity demanded (e.g., minimum wage).
How can government directly influence market equilibrium?
Taxation increases the cost and shifts the market supply curve up and to the left; tax decreases have the opposite effects;
Subsidization decreases the cost and shifts the market supply curve down and to the right; decreases in subsidization have the opposite effects;
Rationing reduces demand, thus shifting the demand curve downward and to the left, thus lowering the equilibrium quantity and price.
Describe the results of a change in market supply (only) on equilibrium.
Increase in market supply = Supply curve shifts down and to the right; Decrease in market supply = Supply curve shifts up and to the left;
Increase in market supply w/no change in demand = Decrease in equilibrium price and increase in equilibrium quantity;
Decrease in market supply w/no change in demand = Increase in equilibrium price and a decrease in equilibrium quantity.
