Price Determination

Question 1

What is market equilibrium

Answer 1

a situation in which quantity demanded equals quantity supplied - a trade off for buyer and seller

Question 2

What happens when demand increases

Answer 2

Equilibrium Price is Higher

Equilibrium Quantity is Higher

Question 3

What happens when demand decreases

Answer 3

Equilibrium price is lower

Equilibrium quantity is lower

Question 4

What happens when supply increases

Answer 4

Equilibrium price is lower

Equilibrium quantity is higher

Question 5

What happens when supply decreases

Answer 5

Equilibrium price is higher

Equilibrium quantity is lower

Question 6

What does excess demand lead to

Answer 6

Upward pressure on price

Ration demand to consumers with effective demand

Stimulates an expansion of supply

Question 7

What does excess supply lead to

Answer 7

Downward pressure on prices

Extensions of demand - cuts surplus and takes a market towards equilibrium