Price Mechanism

Question 1

Equalibirum

Answer 1

• when two curves intersect –> the price of quantities demanded and supplied are equal
• buyers want to purchase, and sellers are willing to offer
• unless the demand or supply curve shifts, there will be no tendency for produce to change
• will only be ONE equilibrium point at any one time

Question 2

Quantity Demanded Decreases at a Given Price

Answer 2

• the whole demand curve shifts inwards and to the left

1. Demand decreases
2. Supply contracts - > until new lower equilibrium is reached where demand again equals supply
3. Demand expansion

Question 3

Quantity Demanded Increases at a Given Price

Answer 3

• shifts the whole demand curve outwards and to the right

1. Demand Increases
2. Supply expands - > until new higher equilibrium price is reached where demand again equals supply
3. Demand contracts

Question 4

Quantity Supplied Decreases at a Given Price

Answer 4

• the whole supply line shifts outwards and to the left

1. Supply decreases
2. Demand contracts - > until the market comes to rest a the higher equilibrium
3. Supply expands

Question 5

Quantity Supplied Increases at a Given Price

Answer 5

• the whole supply line shifts out and to the right

1. Supply increases
2. Demand expands - > until the market comes to rest at the lower equilibrium
3. Supply contracts