Topic 2: Equilibrium Flashcards
1
Q
what is equilbiurm also known as
A
market clearing price
2
Q
What occurs when market is above equilbiurm
A
Surplus (S> D)
3
Q
Explain the natural movement back to equilibrium when market price is above equilibrium.
A
o Firms have excess supply > reduce their prices > quantity demanded increases until reaches equilibrium
(movement not shift)
4
Q
what occurs when market is below equilibrium
A
Shortage (D > S)
5
Q
Explain the natural movement back to equilibrium when market price is below equilibrium.
A
o Price increases > quantity demanded decreases until reaches equilibrium
