Market Prices

Question 1

What is market equilibrium

Answer 1

Where planned demand equals planned supply and the demand curve crosses the supply curve
No excess demand, no excess supply in the market
Unless events disturb the equilibrium, no reason for the price to change

Question 2

What is the invisible hand

Answer 2

The invisible hand is a metaphor used by the British philosopher Adam smith for his theorised social mechanism according to which within the free markets the prices are guided by the public markets.

Question 3

When does market disequilibrium occur

Answer 3

when the quantity demanded does not equal the quantity supplied.

Question 4

When does market equilibrium occur

Answer 4

When the quantity demanded equals the quantity supplied in a market for a particular good or service

Question 5

What is the acronym for the price mechanism

Answer 5

SIRA / ARSI

Question 6

What does SIRA / ARSI stand for

Answer 6

• Signal – to producers that prices are either too high or too low
• Incentive – to producers to change prices to maximise profits
• Ration – surpluses and shortages
• Allocate – scarce resources effectively