Market Equilibrium
What is the definition of market equilibrium?
Market equilibrium: The point where quantity demanded equals quantity supplied.
What is a market surplus?
Market surplus: When quantity supplied exceeds quantity demanded at a given price.
What causes a shift in the demand curve?
Cause of a shift in the demand curve: Changes in income, tastes, number of buyers, expectations, or prices of related goods.
What does the intersection of the supply and demand curves represent?
Intersection of supply and demand curves: Represents market equilibrium price and quantity.
How do you identify the equilibrium price on a graph?
Equilibrium price on a graph: The price where the supply and demand curves intersect.
Describe what occurs during a shortage.
During a shortage: Quantity demanded exceeds quantity supplied, causing upward pressure on prices.
How does an increase in consumer income affect demand?
Increase in consumer income effect: Demand usually rises for normal goods.
Describe the shape of the supply curve.
Shape of the supply curve: Upward sloping, showing higher prices lead to higher quantity supplied.
What happens when the market is in equilibrium?
When the market is in equilibrium: There is no surplus or shortage, so there’s no incentive to deviate from the price.
Give an example of a real-world surplus.
Real-world surplus example: Excess unsold holiday decorations after the season ends.
What is the impact of a new technology on supply?
Impact of new technology on supply: Increases supply by reducing production costs.
What does a shift to the right in the demand curve indicate?
Shift to the right in demand curve: Indicates an increase in demand at every price level.
Explain how price affects quantity demanded.
Price affects quantity demanded: Higher prices lower quantity demanded; lower prices increase it.
What actions do sellers take in response to a surplus?
Seller response to a surplus: Lower prices, run promotions, or cut production.
Explain how a natural disaster could affect supply.
Natural disaster effect on supply: Decreases supply by destroying resources or disrupting production.
How do you graph a decrease in supply?
Graphing a decrease in supply: Shift the supply curve leftward.
What is the significance of equilibrium in resource allocation?
Significance of equilibrium in resource allocation: It ensures resources are used efficiently with no waste.
What is the long-term effect of a persistent shortage?
Long-term effect of persistent shortage: Market fixes itself through rising prices, increased production, or demand decrease until equilibrium is restored.
Describe the effects of simultaneous shifts in supply and demand.
Effects of simultaneous shifts: Both price and quantity may change in unpredictable ways, depending on shift size.
Explain the significance of the area under the demand curve.
Significance of area under demand curve: Represents total willingness to pay or total benefit to consumers.