Market Equilibrium and interrelationships Flashcards
what is a market
A market is a place where buyers and seller meet to exchange
what is meant by equalibruim
The point at which supply= demand
also known as the market clearing price
What does it mean if the line p2 is above the point of equilibrium?
This means there is excess supply and can be illustrated as the distance between the points at which the price level intercepts the curves
What does it mean if the line P2 is below the point of equalibrum
This means that there is excess demand and can be illustrated as the distance between the points at which the line of P2 hits the supply and demand curves
Define excess supply
When the quantity supplied exceeds the quantity demanded when the price is greater than the equilibrium price
Define excess demand
When the quantity demanded exceeds the quantity supplied when the price is less than the equilibrium price
How can changes of an equalibrium occur?
Shifts in supply or demand
What are the functions of the price mechanism,
Signals of price raises
incentive to change price to increase profits
rations excess supply/demand
allocates resources efficiently
What is meant by joint demand
Give an example.
When multiple goods are demanded together (Printers and ink)
What is meant by competing demand? Give an example
Competing demand occurs when customers can choose between alternative products or services (Pepsi and coke)
What is meant by derived demand? Give an example.
Derived demand is when a particular good or FOP is needed for the provision of another good/service
(Bricks and housing)
What is meant by composite demand? Provide an example.
Composite demand is when a good is demanded for multiple uses
(Milk and cheese)
What is meant by joint supply? Provide an example.
Joint supply is when the production of one good leads to the production of another good
(Beef and leather)
