Market Equilibrium Flashcards
When does a market occur?
When buyers and sellers interact to exchange products (demand and supply)
What does the supply curve reflect?
It reflects the decisions of producers. It looks at firms, sellers and producers of a product
What does the demand curve reflect?
It reflects the decisions of consumers
When does equilibrium occur?
When the quantity supplied equals the quantity demanded at the given price and will then find an equilibrium price and equilibrium quantity
When is equilibrium reached in a free market?
It is reached by changes in the price. No one influences the produce other than demand and supply, so there is no government involved
What is excess demand/shortage?
More people want a product than there is available
What causes demand to increase?
Income of people change, product more in fashion and price of a substitute has increased
What happens on the graph if there is an increase in demand?
Demand shifts to the right (supply remains unchanged), equilibrium price increases (higher quantity demanded) and equilibrium quantity increases
Why are firms producing more?
New technology, same cost produces more products and harvests have performed really well
What happens on the graph if there is an increase in supply?
Supply shifts to the right, equilibrium price falls and equilibrium quantity rises
What is an indirect tax?
Not paying directly to the government, firms collect the tax and then give it to the government
What is income tax?
Direct tax - used from your income and given directly to the government
E.g. VAT
What happens with the supply curve in regards to indirect tax?
It must be paid by the supplier, therefore it shifts upwards (to the left), meaning there is a new equilibrium price and quantity
What does an imposition of an indirect tax cause?
It increase the equilibrium price and reduces the equilibrium quantity
What happens if demand is more price inelastic than supply?
The incidence of an indirect tax falls mainly on consumers
