Market equilibrium/disequilibrium and free market price

Question 1

What is Market Equilibrium?

Answer 1

When Demand meets supply.

Question 2

What is excess demand and how it signals firms?

Answer 2

Demand > supply, signals firms to increase price to decrease demand.

Question 3

What is excess supply and how it signals firms?

Answer 3

Supply > Demand, signals firms to decrease price to increase demand

Question 4

Equation for Total Revenue?

Answer 4

Price * Quantity

Question 5

What is the price mechanism

Answer 5

The price mechanism is based on the law of supply and demand, where prices move up or down according to market forces. When there is excess supply or demand, prices or output adjust in response.

Question 6

List me 4 functions of the Price mechanism

Answer 6

1. Allocating
2. Rationing
3. Signalling
4. Incenting

Question 7

What is allocating (Price mechanism)?

Answer 7

Distrubute resources based on supply and demand.

Question 8

What is Rationing (Price mechanism)?

Answer 8

Limits resource consumption when demand > supply

Question 9

What is Signalling (Price Mechanism)?

Answer 9

Signals information to buyers and sellers

Question 10

What is Incenting (Price Mechanism)?

Answer 10

Motivates producers and consumers (e.g high price encourages producer to supply more)