Unit 12 Flashcards
1
Q
Define equilibrium price.
A
Equilibrium price is the price at which there is no tendency to change because planned purchases (i.e. demand) are equal to planned sales (i.e. supply).
2
Q
What is excess demand?
A
Excess demand exists when there is a shortage and demand is greater than supply.
3
Q
What is excess supply?
A
Excess supply is when there is a surplus and supply is greater than demand.
4
Q
What are free market forces?
A
Forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand.
5
Q
What is the market-clearing price?
A
The market-clearing price is the price at which there is neither excess demand nor excess supply but where everything offered for sale is purchased.
