Microeconomics L10

Question 1

What is equilibrium price and quantity?

Answer 1

When supply meets demand

Question 2

What happens to price at market equilibrium

Answer 2

Price has no tendency to change, - market clearing price

Question 3

How is excess demand shown on a demand supply curve?

Answer 3

When P2 is below market equilibrium ( doesn’t touch equilibrium )
Calculated by Q3-Q2

Question 4

What happens when demand is greater than supply?

Answer 4

Shortage in the market, which increases prices and causes firms to supply more, and due to the price increase, demand will contract. When supply meets demand again, price will reach equilibrium

Question 5

How is excess supply shown on the supply demand curve?

Answer 5

Price is above P1

Supply is at Q2 and demand at Q1, surplus of Q2-Q1

Question 6

What happens when there is excess supply?

Answer 6

Firms will lower prices to sell goods and price will fall back to P1 and return to equilibrium