U1 AOS2 - Lesson 8 - Market Equilibrium Flashcards
Equilibrium Price
- The price which leads to the total quantity demanded being equal to the total quantity supplied.
- There is no shortage or surplus of the product at this price
Equilibrium Quantity
The number of goods and services that are sold in the market when the price is at equilibrium level
Shortage
If the price is temporarily below the equilibrium price and set too low, it will mean that demand will exceed supply
Surplus
If the price is temporarily above the equilibrium price and set too high, it will mean that supply will exceed demand
Notepads and pens can be considered to be complements. Woodchips are an input to notepads, and plastic is an input to pens. Assume markets for notepads, pens, woodchips and plastic, are all perfectly competitive. Suppose that the equilibrium price of notepads increases, and the equilibrium price of pens decrease.
Which of the following could explain these changes?
a) A decrease in the supply of plastic
b) An increase in the demand for wood chips
c) An increase in the demand for plastic
d) An increase in the supply of plastic
e) Either (b) or (d)
E
The government of OZLand announces that on 1 July 2024 it will introduce a new tax on digital TVs. The announcement is made on 1 January 2024. It is known that the effect of the tax will be to increase the price of digital TVs after 1 July 2024. Prior to 1 July 2024 it would be expected that the effect of buyers knowing that the tax will be introduced would be to:
a) Increase the equilibrium price of digital TVs
b) Decrease demand for digital TVs
c) Decrease the equilibrium quantity traded of digital TVs
d) Be zero since the tax has not been introduced yet
e) Both (a) and (c)
A
The markets for strawberries and blueberries are perfectly competitive. Strawberries and blueberries are substitutes. Suppose that adverse weather destroys 30% of the domestic strawberry crop. Which of the following statements is correct?
(a) The price of strawberries will rise and the quantity of blueberries will fall.
(b) The price of strawberries will rise and the quantity of strawberries will rise.
(c) The price of blueberries will rise and the quantity of blueberries will rise.
(d) The price of blueberries will rise and the quantity of blueberries will fall.
(e) None of the above.
C
Suppose there are a positive demand shock and a positive supply shock in a perfectly competitive market. Which of the following cannot happen?
a) The equilibrium price increases.
b) The equilibrium price decreases.
c) The equilibrium quantity increases.
d) The equilibrium quantity decreases.
e) None of the above.
D
The government introduces a price ceiling on the price of a litre of milk. Assume that the price ceiling is less than what the equilibrium price would be if there was no government intervention in the market. We would expect that the effect of the price ceiling would be to:
a) Decrease the quantity traded of milk.
b) Cause no change in the equilibrium price of milk.
c) Increase the total surplus to society in the market for milk.
d) Increase the well-being of producers, and lower the well-being of consumers.
A
VCAA 2020
Question 10
A fall in the equilibrium price but no change in equilibrium quantity could only occur from which one of the following combinations?
A. a decrease in demand and an increase in supply
B. an increase in demand and a decrease in supply
C. a decrease in both demand and supply
D. an increase in both demand and supply
A
VCAA 2019
Question 9
If a severe drought affected this year’s wheat harvest, what would be then effect on the equilibrium price and
equilibrium quantity of wheat?
A. The equilibrium price and equilibrium quantity both decrease.
B. The equilibrium price and equilibrium quantity both increase.
C. The equilibrium price decreases and the equilibrium quantity increases.
D. The equilibrium price increases and the equilibrium quantity decreases.
D
VCAA 2019
Question 10
The effect of a fall in the price of a complementary Product Y on the market for Product X will be to
A. shift the demand curve right and increase the equilibrium price.
B. shift the demand curve left and decrease the equilibrium price.
C. shift the supply curve left and increase the equilibrium price.
D. shift the supply curve right and decrease the equilibrium price.
A
VCAA 2018
Question 3
A health warning stating that wearing a hat reduces skin cancer would be likely to change the equilibrium in the hat market, shown in the diagram above, from point A to point
A. B.
B. C.
C. H.
D. E.
A
Construct a fully labelled demand and supply graph for the market for electricity
Must include
* Label for y-axis (price)
* Label for x-axis (quantity)
* Label for suppy and demand lines
* Label for equilibrium, equilibrium price and equilibrium quantity
* Title
The Victorian Default Offer (VDO) is “safety-net price cap that ensures consumers are protected from unjustifiably high prices”. Historically, the VDO has formed a ceiling price and has been above the equilibrium price. However, recent increases in the equilibrium price of electricity have meant that the VDO has become the price floor and has been lower than the equilibrium.
Construct this situation in a fully labelled supply and demand graph of the electricity market recently.
Suppose there are a negative demand shock and a positive supply shock in a perfectly competitive market. Which of the following cannot happen?
a) The equilibrium price increases.
b) The equilibrium price decreases.
c) The equilibrium quantity increases.
d) The equilibrium quantity decreases.
e) None of the above.
A
Price floor above equilibrium price will cause…
Surplus
Price ceiling below equilibrium price will cause…
Shortage
The chart represents the quantities supplied and demanded at different prices in the market for eggs.
What is the equilibrium price and quantity?
Equilibrium price = $5
Equilibrium quantity = 175
The following table shows the quantities supplied and demanded at each price, as a proportion of the equilibrium quantity.
What is the equilibrium quantity?
Assuming that the equilibrium quantity is 100, complete the table with the final quantites for each price.
Equilibrium price = $4
VCAA 2024
Question 9
The governments in some developing countries try to protect the low income populations by setting maximum (ceiling) prices on some foods to make them more affordable.
In the diagram, if the government intervened and set the maximum price for rice at PMAX, the effect of this would be to
A. decrease the rice available from Q3 to Q1
B. increase the rice available from Q2 to Q3
C. increase the rice available from Q1 to Q3
D. decrease the rice available from Q1 to Q2
D
Q1 is equilibrium price (without government intervention)
New price (PMAX) is below equilibrium so producers will be less willing to produce → decrease quantity supplied to Q2
Q3 represents the quantity demanded at PMAX
66% of the state got this right
Calculating a Surplus/Shortage
Quantity supplied minus quantity demanded
- If positive, a surplus exists (supply exceeds demand)
- If negative, a shortage exists (demand exceeds supply)
In 2025, the Victorian Government introduced a levy on short term rental properties (less than 28 days) of 7.5% of the total cost of accommodation.
Construct a fully labeled supply and demand graph that represents the impact on quantity and price on the market for holiday rentals.
What is the impact on the demand curve?
What is the impact on the supply curve?
Contraction along demand curve
Supply curve shifts left
The number of Australians aged 65 and over has increased from 8% of the population (1970) to to 12% (1995) to 16% (2020).
Construct a fully labeled supply and demand graph that represents the impact on quantity and price in the market for aged care homes.
What is the impact on the demand curve?
What is the impact on the supply curve?
Demand curve shifts right
Expansion along supply curve
Assume the government introduces a price ceiling on 2 bedroom properties of $650/week.
Using the supply and demand schedule, identify the surplus/shortage that will be created and the quantity of the surplus/shortage.
Construct a fully labeled supply and demand graph that represents the impact on quantity and price on the market for rental properties.
A partnership between TPG and Optus (Jan 2025) has increased the areas serviced with mobile signal by 2.7x. This has resulted in Vodafone (part of TPG) now covering 98.4% of the nation’s population.
Construct a fully labeled supply and demand graph that represents the impact on quantity and price in the market for mobile data.
What is the impact on the demand curve?
What is the impact on the supply curve?
Demand curve shifts right (increase population access)
Expansion along supply curve
The 2024-25 Federal Budget provided a $300 energy rebate to all households, which is applied as a credit to electricity accounts.
The government also has a price ceiling on electricity prices. Assume that the current equilibrium price is below the price ceiling.
Construct a fully labeled supply and demand graph that represents the impact on quantity and price in the market for electricity following the rebate.
What is the impact on the demand curve?
What is the impact on the supply curve?
Demand curve shifts right (increase disposable income)
Expansion along supply curve
During the day, households with solar panels consume less power than they produce, so they are able to export their surplus to the grid.
Construct a fully labeled supply and demand graph that represents the situation in the market for electricity.
The high volume of solar electricity exported to the grid during the day has resulted in a very low ‘feed in tariff’ which is the price paid to solar panel owners for exporting to the grid.
In order to incentivise more households to install solar panels, the government introduces a price floor above the equilibrium price.
Construct a fully labeled supply and demand graph that represents the situation in the market for electricity.
The decrease in interest rates to 4.1% will likely cause which effects in the market for housing?
A. Shift the demand curve left and cause a contraction in supply
B. Shift the demand curve left and cause an expansion in supply
C. Shift the demand curve right and cause a contraction in supply
D. Shift the demand curve right and cause an expansion in supply
D
The health impacts of fast food lead to the government implementing a tax on fast food retailers. This will likely cause the
A. Demand curve to shift left, leading to a decrease in price
B. Supply curve to shift right, leading to an increase in price
C. The price increasing above the equilibrium, causing a shortage
D. The price increasing above the equilibrium, causing a surplus
B
Funding constraints have forced some public schools to implement curriculum charges.
This may impact the market for stationery through
A. Decreased disposable income, leading to the demand curve shifting right
B. Increase price of substitutes, leading to the demand curve shifting right
C. Increased price of complements, leading to the demand curve shifting left
D. Decreased disposable income, leading to the demand curve shifting left
D
Following Cyclone Alfred, assume the government decides to implement a price cap on insurance premiums to ensure more households are insured. This price cap is set below the equilibrium price in the market for insurance premiums. This will likely result in
A. More households previously uninsured becoming insured and all households previously insured remaining insured
B. Less households previously uninsured becoming insured and all households previously insured remaining insured
C. More households previously uninsured becoming insured and less households previously insured remaining insured
D. All households previously uninsured becoming insured and all households previously insured remaining insured
E. No households previously uninsured becoming insured and less households previously insured remaining insured
Lower global oil prices will likely cause which effects in the market for petrol
A. Higher equilibrium price and a expansion in supply
B. Lower equilibrium price and a contraction in supply
C. Higher equilibrium price and a contraction in demand
D. Lower equilibrium price and an expansion in demand
D
True/False?
There can be a contraction in supply and an expansion in demand simultaneously
True
If a price ceiling is set below the equilibrium price
True/False?
There can be a expansion in supply and an contraction in demand simultaneously
True
If a price floor is set above the equilibrium price
A decrease in income tax will cause a shift of the [demand/supply] curve
Demand
A increase in the alcohol excise tax will cause a shift of the [demand/supply] curve
Supply
Water in the Murray Darling basin is allocated using a market where farmers can purchase an allocation of water for the year.
In order to ensure greater availability of water for flow through the river for the natural environment, the government reduces the total quantity of water available for purchase.
Construct a fully labeled supply and demand graph that represents the change in the market for water.
What is the impact on the demand curve?
What is the impact on the supply curve?
Contraction along demand curve
Supply curve shifts left
Vertical supply curve as supply of water is fixed by government
A market begins at equilibrium (E1). However, the demand curve shifts to the right, which is followed by the supply curve shifting to the left. This results in a new equilibrium (E2).
From E1 to E2
A. both the price and the quantity increase
B. both the price increases and the quantity decreases
C. the price increases and the quantity remains unchanged
D. the price increases but the impact on quantity cannot be determined
D
Changes could be represented by either diagram
Results will depend on the size of each shift
A market begins at equilibrium (E1). However, the demand curve shifts to the left, which is followed by the supply curve shifting to the right. This results in a new equilibrium (E2).
From E1 to E2
A. both the price and the quantity decrease
B. the price decreases but the impact on quantity cannot be determined
C. the price decreases and the quantity remains unchanged
D. both the price decreases and the quantity increases
B
Changes could be represented by either diagram
Results will depend on the size of each shift
A market begins at equilibrium (E1). However, the demand curve shifts to the right, which is followed by the supply curve shifting to the right. This results in a new equilibrium (E2).
From E1 to E2
A. both the price and the quantity increase
B. the quantity increases and the price remains unchanged
C. the quantity increases but the impact on price cannot be determined
D. both the price decreases and the quantity increases
C
Changes could be represented by either diagram
Results will depend on the size of each
A market begins at equilibrium (E1). However, the demand curve shifts to the left, which is followed by the supply curve shifting to the left. This results in a new equilibrium (E2).
From E1 to E2
A. the quantity decreases but the impact on price cannot be determined
B. both the price and the quantity decrease
C. the quantity decreases and the price remains unchanged
D. both the price increases and the quantity decreases
A
Changes could be represented by either diagram
Results will depend on the size of each
