Price Determination Flashcards
1
Q
Equilibrium Price 3
A
Where supply and demand are equal, this is the price where the market will settle No shortage or surplus of either demand or supply Can be known as market clearing price
2
Q
Supply & Demand Equilibrium diagram
A
3
Q
Why markets don’t always clear
A
Some things can prevent equilibrium being met in certain markets e.g. In the UK labour market, price of labour (wages) is always kept above equilibrium due to minimum wage. This causes a surplus of workers who are willing and able to work
Firms can also collaborate to keep price greater than equilibrium, this is known as forming a cartel e.g. Siemens electronical equipment cartel 2007
