T2 Market Equilbrium Flashcards
What is market equilibrium
The point where quantity demanded equals quantity supplied.
This is also known as the point where the market clears
What are the two components of market equilibrium
Equilibrium price.
Equilibrium quantity.
What is equilibrium price
The price at which quantity demanded equals quantity supplied
What is equilibrium quantity
Quantity bought (demanded) and sold (supplied) at equilibrium price.
Explain what market equilibrium means for the market
This insures the most efficient allocation of resources there is no XS supply or demand and therefore need a overproduction not underproduction
What is consumer surplus
It is the value of a good and access to the price paid I.E.the amount a consumer is prepared to pay above the price they have actually paid.
This is represented by the area below the demand curve and above the market price
This represents the amount saved by consumers it would’ve been willing to pay more than the market price
What is producer surplus
Reduces surplus is the price received by seller above the price that be willing to except.
This is represented by the area above the supply curve and above the market price
This represents the additional money earned by producers who are willing to sell the product for less than the market price
True or false that at market equilibrium total welfare is maximised
True
How is total welfare calculated
Consumer surplus plus producer surplus
What does dead weight loss represent
It was the welfare want to market is not at equilibrium due to reductions in consumer and producer surplus
When the requirements of buyers and sellers interact the conditions for an ideal exchange are established via a market equilibrium - true or false
True
