Theme 1.2. Price determination (unit 12) Flashcards
What is the equilibrium price?
It is the price at which there is no tendency to change supply or demanded as it is at both the planned purchases and the planned sales.
What is excess demand?
Where demand is greater than supply.
what is excess supply?
Where supply is greater than demand.
What are free market forces?
They are forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess supply.
What are producer and consumer surplus?
Insert graph from text book.
What is it important to note about the equilibrium price and and the market price.
That the equilibrium price isn’t likely to be the right market price depending on what the driving motives of the market are.
What is the market clearing price?
It is the price at which there is neither excess demand or excess supply but where everything offered for sale is purchases.
