Markets

Question 1

Equilibrium price / clearing price.

Answer 1

When supply and de,and are equal. Market is in equilibrium.

Question 2

Total revenue / expenditure

Answer 2

Total revenue is the amount of money generated from the sale of output.
Total revenue = price x quantity

Question 3

Changes in demand

Answer 3

If demand increases, price will rise. This is because producers react to rising consumer demand by putting
up their prices.
Check book.

Question 4

Changes in supply

Answer 4

A change in supply will also affect equilibrium price. For example, if supply increases the price will fall.
Check book

Question 5

Changes in demand an supply

Answer 5

Demand can increase and supply decrease and viceversa. The equilibrium price changes. For example, if there’s high demand for diamonds buy there’s not enough material to meet supply.
Check book

Question 6

Disequilibrium in the market

Answer 6

If the price in a particular market is not set at the point where supply and demand are equal, there will be disequilibrium ni the market.

Excess demand: If the price charged in a market is below the equilibrium price, demand and supply will not be equal. the equilibrium price for button mushrooms is £1.50. At this price, supply and demand are both 60,000 kg. However, fi the price is set lower, say at £0.50 per kg, the market is not in equilibrium. At this lower price demand is 100,000 kg and supply is only 20,000 kg. Excess demand is when there’s a shortage of goods in the market.

Excess supply: if the price charged is set above the equilibrium price, again, demand and supply are not equal. In Figure 7, fi the price is set higher, say at £2.50, demand is only 20,000 kg while supply is 100,000 kg.
This time there is excess supply, which means that goods would remain unsold.