MKTS AND EQUILIBRIUM Flashcards
MKT -
any place where buyers meet suppliers to exchange g/s
MKT CAN BE
Physicall - matrekt shop online - amazon and ebay
IN MKT HOW DO WE GET PRICE AND Q
DERIVED FROM EQUILIB
IN EQUILIBRIUM..
D = S
DEFINE EQUILIB
POINT WHERE MKT CLEARED FROM EXCESS DEMAND AND SUPLY
EQUILIBRUM MKT PRICE AKA
CLEARING PRICE
DISEQULIB
3 MKS
demand not = supply
Price above or below equilibrium
we see divergence between S &D
DRAW MKT WITH EXCESS SUPPLY
3 mks
Price Above -
demand and supply not balance
Distance between a and b = excess supply
axis
what is excess supply
- more supply than demand which isnt equilibrium
what happens when theres a decrease in price
draw
thers disequilibrium
gap between supply and demand , excess demand - as d greater than supply
In a free mkt why wont disequilibrium wont last a
mkt has 4 mechanisms that take away problems that exist in form of excess supply.demand
state the way to rember mkt mechanism untions
ARSI
in the morning
What does ARSI stand for
Allocation scarce resources efficiently by
Rationing excess demand and supply by
Signals to producers price too low/high +
incentives offered change prices and increase profit to producers
Freemkt menas
- no intervention of gov - interaction of producers/consimers
pneumonic to rember steps of mkt functions
SIRA
Draw demand shift to right new equiib where d2 cits s1
Give reason why could happen PASIFIC
EXPLAIN WHY A FREE MKT HIGHER PRICE OF P2 WONT LAST
Signla sent to producers that price is too high - excess stock in warehouses ,
Then mKT provides incentive for producers to change REDUCE price SO can sell excess supply/stock which they profit from
now theres contraction along supply curve and extension of demand bring us to p1 and q1
now we back at equilib as no excess supply or demand as we’ve rationed away excess
weve got perfect allocation of scarce resources , At p1 and q1 as we’re back at equilib and no excess
draw + explain why free mkt lower price of P3 wont last
BELOW EQUILIB - excess demand
Singla sent that price too low - massive queues , showing excess dmnd and supply cant keep up
Incentive for producers to raise pice , satisfy excess demand at higher price to increase profits
We see extension of supply contraction of demand in which
we end up at p1 q1 equilib , so excess demand and supply ben rationed and got perfect allocation of resources
when demand shifts it shifts @
same price
WHEN EXPLAINING PROCESS EXPLAIN CURVE SHIFTS AT SAME PRICE THIS CREATES EXCESS UPPLY EQUIVALENT TO AB and continue due to x y z
DO SHIFT BACKWARDS AND FORWARD FOR BOTH S AND DEMAND
yes or nah
if price below equilib =
excess demand
if priec above equilib =
excess supply