Supply ( 2 )

Question 1

What is producer surplus?

Answer 1

• The difference between the price the producer is willing to charge, and the price they actually charge.
• The private benefit gained by the producer that covers their cost, and is measured by profits.

Question 2

What is the producer surplus on a supply curve?

Answer 2

Area below the market price, and above the supply curve.

Question 3

How can producer surplus be increased?

Answer 3

• Shifting the curve to the right.

* Lower production costs, market price decreases, and producer surplus increases.

Question 4

What happens at equilibrium?

Answer 4

• Price and output are stable, there is a balance in the market and supply is equal to demand.
• Price has no tendency to change, where supply meets demand.

Question 5

What are market forces?

Answer 5

The free interaction of supply and demand.

Question 6

What is disequilibrium?

Answer 6

• Where supply and demand aren’t equal.

* Can be excess supply, and excess demand.

Question 7

What is excess supply?

Answer 7

•When the quantity supplied to the market is greater than the quantity demanded

Question 8

What happens when there is excess supply?

Answer 8

Price is forced won, supply will contract, and demand will extend until equilibrium is reached.

Question 9

What is excess demand?

Answer 9

• When demand for a good/service is greater than its supply.

Question 10

What happens when there is excess demand?

Answer 10

• Price is forced up, demand will contract and supply to extend until equilibrium is met

Question 11

When is a new market equilibrium established?

Answer 11

When curves shift for non price related reasons.