The Market 1.6

Question 1

Equilibrium Price and Market Clearing:

Answer 1

The equilibrium price is where consumer demand matches producer supply.

At this price, there’s no excess demand or supply—known as the market-clearing price.

Question 2

Total Revenue Calculation:

Answer 2

Total revenue (TR) = Price (P) x Quantity (Q).

Example: At equilibrium (£1.50 per kilo), TR for button mushrooms = £1.50 * 60,000 kilos = £90,000.

Question 3

Shifts in Demand

Answer 3

An increase in demand shifts the demand curve to the right, raising the equilibrium price and quantity.

A decrease in demand shifts it to the left, reducing the equilibrium price and quantity.

Question 4

Shifts in Supply

Answer 4

Increase in supply shifts the supply curve rightward, lowering price and raising quantity.

Decrease in supply shifts it leftward, raising price and lowering quantity.

Question 5

Simultaneous Changes in Supply and Demand

Answer 5

If demand increases and supply decreases simultaneously, price rises. The quantity outcome depends on the degree of each shift.

Question 6

Disequilibrium

Answer 6

Excess Demand: Price below equilibrium causes demand to exceed supply, creating shortages.

Excess Supply: Price above equilibrium causes supply to exceed demand, resulting in unsold stock.