Topic 6

Question 1

Interaction of supply and demand

Answer 1

Equilibrium price -> supply = demand
Market clearing price -> buyers and sellers transact without leaving unsold goods or unmet demand

Question 2

Changes in demand

Answer 2

Shift in demand curve
. Increase in demand -> shifts curve to the right -> increases equilibrium price + quantity demanded
. Decrease in demand -> shifts curve to the left -> lower equilibrium price + quantity demanded

Question 3

Changes in supply

Answer 3

Shift in supply curve
. Increase in supply -> shift to right -> decreases prices -> increases quantity sold
. Decrease in supply -> shift to left -> increase in prices -> decrease in quantity sold

Question 4

Desiquilibrium in market

Answer 4

Excess demand -> prices is set below equilibrium = causing shortages
Excess supply -> price is set above equilibrium = causing surpluses