Market equilibrium and disequilibrium Flashcards
1
Q
Define Market?
A
Any place where buyers meet suppliers to exchange goods/services.
2
Q
What’s another word for Market?
A
Price mechanism
3
Q
What is the role of the Market?
A
Allocates scarce resources
Rations excess demand/supply
Signals that price is too high/low
Incentives to change price and increase profits
4
Q
How would excess supply in a demand and supply curve?
A
- Draw a normal D pointing downwards
- draw a normal Supply curve pointing upwards
- Excess supply would be above
5
Q
How would excess demand in a demand and supply curve?
A
- Draw a normal Demand line pointing downwards
- Draw a normal supply curve pointing upwards
- excess demand would be below
6
Q
In a free market do governments get involved?
A
NO
7
Q
When there is a shift in demand (microeconomic shifts)
A
- Increase population
- good advertising
- increase in subsidies
- increase income
- reduction in interest rates
- reduction in complementary goods
8
Q
When there is a shift in supply (microeconomic shifts)
A
- Increase labor
- Remove indirect tax
- improvement in tech
9
Q
How will demand shift to the right when prices are too low?
A
- Signals will be sent that prices are too low
- incentive to change prices-so they increase the price and produce goods at a higher price
- excess demand will be rationed
- there will be perfect allocation of scarce resources-invisible of hand
10
Q
How will supply shift to the right when prices are too high?
A
- There will be excess supply in the market so a signal is sent to the market that prices are too high.
2. an incentive to lower the price to make more profits
3. this means it will be equilibrium as excess supply has been rationed.
4. there will be perfect allocation of scarce resources.
