The determination of equilibrium market prices

Question 1

What is free market?

Answer 1

any place where buyers meet suppliers to exchange goods and services free from government intervention

Question 2

What is equilibrium

Answer 2

where demand equals supply (Allocative efficiency)

Question 3

What is the price mechanism acronym ?

Answer 3

ARSI
Allocate scarce resources efficiently
Ration scarce resources by encouraging/discouraging consumption
Signal excess supply or demand
Incentivise for producers to increase or decrease output to increase profit

Question 4

How do excess demand and excess supply lead to price changes?

Answer 4

In the case of excess demand, prices rise to reach equilibrium, while in the case of excess supply, prices fall to stimulate demand, both moving the market back towards equilibrium.

Question 5

What is a consumer surplus?

Answer 5

difference between the price the consumers are willing and able to pay for a good or service compared to the price they actually pay.

Question 6

What is a producer surplus?

Answer 6

difference between the price the producers are willing and able to supply a good or service for compared to the price they actually receive.

Question 7

How would you work out the society surplus?

Answer 7

CS + PS