week 03: Equilibrium Flashcards
Equilibrium
What is Equilibrium?
When the quainty supplied= Quanity demanded
What happens to the market if we go above the equilibrium price?
There will be a surplus. As the Quainity supplied is higher than the Quanity demanded due to an increase in the price of the good.
What happens to the markert if we fall below the Equilibrium price?
There will be a shortage. As the quainity demanded is greater than the quanity supplied due to a decrease in the price of the good.
How a change in deamnd affects the Markert Equilibrium
A increase in deamand?
Increases the Equilibrium price
How a change in deamnd affects the Markert Equilibrium
A decrease in demand?
Decreases the Equilibrium price
How does an increase in supply affect the EQuilibrium price?
When the Supply increases
The EQuilibrium price decreases
How does an decrease in supply affect the EQuilibrium price?
Decrease in supply?
Increase in EQuilibrium price
Price controls initatited by the gov to help control the market
What is a price ceiling?
A legally established ,ax price a saller can charge the customer.
What are the steps to applying a demand and supply model to a irl application word problem?
- Decide which curve to shit (supply or demand)
- Determine the direction (left or right).
- Draw the supply or deamand curve
- Read the new pricce/quainity
Is the price ceiling above or below the Equilibrium Price?
It is below.
What is one negative side effect of a price control?
Black markerts could emerge
what is a price floor?
They help to assist sellers and are above the rpice quilibrium.
What is one negative side effecct pf price floor?
Can cause unemployment as comapines may be less likely to hire more people.
What happens if a price floor is set above markert pricce?
It will cause a shortage
