Topic 3.5: The Determinants of Equilibrium Market Prices

Question 1

When demand/supply…

Answer 1

When the demand/supply curve shifts, there will always be a Disequilibrium as it shifts from the original price of the market

Question 2

Prices…

Answer 2

A - Allocate resources efficiently at equilibrium 4
R - Ration resources by increasing/decreasing consumption 3
S - Signal excess demand (if prices rise)/supply (if prices fall) and need for resources. 1.
I - Incentivise firms to increase/decrease output to maximise profit. 2.

Question 3

To find disequilibrium

Answer 3

You continue the line of the original price from the original equilibrium to where the new curve has shifted.

Question 4

Consumer Surplus Definition

Answer 4

The difference between the price consumers are willing and able to pay for a good/service and the price they actually pay for it

Question 5

Where is Consumer Surplus on a S/D Graph

Answer 5

Below the demand curve and above the price line

Question 6

Producer surplus Definition

Answer 6

The difference between the price producers are willing and able to supply a good/service and the price they actually supply the good/service at

Question 7

Where is Producer Surplus on a S/D Graph

Answer 7

Below the price line and above the supply curve