Market Equilibrium Flashcards
1
Q
What happens when a market is in equilibrium?
A
Supply = Demand
2
Q
What is a market?
A
Where buyers and sellers meet to exchange money for goods.
3
Q
What does the Price Mechanism do?
A
- Looks at how supply and demand interact to set the market price and amount of goods sold
4
Q
What is it called when demand and supply are not at equilibrium?
A
DISEQUILIBRIUM
5
Q
Diagram for market Equilibrium
A
6
Q
Diagram showing Excess Demand and an overall SHORTAGE
A
7
Q
What will firms do if there is a shortage?
A
- Put up prices and supply more
8
Q
Diagram showing a SURPLUS and excess supply.
A
9
Q
What do firms do to counter-act excess Supply and an overall SURPLUS?
A
Take down prices and reduce supply
10
Q
If there was an increase in income what would happen to the new equilibrium??
A
- Demand shifts right
- Initially a shortage of the good
- So business increase quantity supplied and price
11
Q
A
