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Questions and Answers
What is the effect on the quantity supplied when the market price is set below the equilibrium price?
What is the effect on the quantity supplied when the market price is set below the equilibrium price?
- The quantity supplied increases significantly.
- The quantity supplied decreases. (correct)
- The quantity supplied remains unchanged.
- The quantity supplied matches the quantity demanded.
How does the presence of more producers in a market affect the supply curve?
How does the presence of more producers in a market affect the supply curve?
- The supply curve shifts to the right. (correct)
- The supply curve becomes steeper.
- The supply curve shifts to the left.
- The supply curve remains fixed.
How is equilibrium price determined in a perfectly competitive market?
How is equilibrium price determined in a perfectly competitive market?
- By the cost of production only.
- By government regulation.
- By the highest price consumers are willing to pay.
- When quantity demanded equals quantity supplied. (correct)
What happens when the market price is significantly higher than the equilibrium price?
What happens when the market price is significantly higher than the equilibrium price?
What is indicated when the demand at a price of $3 exceeds the quantity supplied?
What is indicated when the demand at a price of $3 exceeds the quantity supplied?
What is the role of the marginal social benefit and marginal social cost in determining equilibrium in a market?
What is the role of the marginal social benefit and marginal social cost in determining equilibrium in a market?
In the context of market capture, what would likely happen if firms began to earn economic profits?
In the context of market capture, what would likely happen if firms began to earn economic profits?
How would the horizontal summation of supply curves function in a perfectly competitive market?
How would the horizontal summation of supply curves function in a perfectly competitive market?
What happens to quantity supplied when the wage rate increases?
What happens to quantity supplied when the wage rate increases?
How is the new equilibrium price established after an increase in costs?
How is the new equilibrium price established after an increase in costs?
What is the effect of higher prices on consumer demand?
What is the effect of higher prices on consumer demand?
What results when the marginal benefit to consumers exceeds the minimum price producers accept?
What results when the marginal benefit to consumers exceeds the minimum price producers accept?
What does it mean for consumers and producers to become price takers?
What does it mean for consumers and producers to become price takers?
Which factors can shift the market supply curve for a product?
Which factors can shift the market supply curve for a product?
How does an increase in the number of producers in a market typically affect the supply curve?
How does an increase in the number of producers in a market typically affect the supply curve?
What happens to the equilibrium quantity when the equilibrium price increases?
What happens to the equilibrium quantity when the equilibrium price increases?
What happens when the market price is less than the equilibrium price?
What happens when the market price is less than the equilibrium price?
How does the total net benefit at the equilibrium price relate to consumer behavior?
How does the total net benefit at the equilibrium price relate to consumer behavior?
What occurs when there is an excess supply in the market?
What occurs when there is an excess supply in the market?
What is the relationship between marginal social cost and marginal social benefit at equilibrium?
What is the relationship between marginal social cost and marginal social benefit at equilibrium?
In a perfectly competitive market, what happens if the government interferes?
In a perfectly competitive market, what happens if the government interferes?
What is the impact of new entrants in a market with excess demand?
What is the impact of new entrants in a market with excess demand?
Which statement is true regarding producer surplus at the equilibrium price?
Which statement is true regarding producer surplus at the equilibrium price?
What drives the convergence of quantity produced and quantity demanded to the equilibrium quantity?
What drives the convergence of quantity produced and quantity demanded to the equilibrium quantity?
Flashcards
Equilibrium Price (Perfect Competition)
Equilibrium Price (Perfect Competition)
The price at which the quantity demanded equals the quantity supplied in a perfectly competitive market.
Marginal Social Benefit (MSB)
Marginal Social Benefit (MSB)
The added benefit to society from consuming one more unit of a good.
Marginal Social Cost (MSC)
Marginal Social Cost (MSC)
The added cost to society from producing one more unit of a good.
Excess Demand (Shortage)
Excess Demand (Shortage)
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Excess Supply (Surplus)
Excess Supply (Surplus)
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Price Taker
Price Taker
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Wage Rate Increase Impact
Wage Rate Increase Impact
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Efficient Allocation of Resources
Efficient Allocation of Resources
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Perfectly Competitive Market
Perfectly Competitive Market
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Equilibrium Quantity
Equilibrium Quantity
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Study Notes
Equilibrium in a Perfect Competition Market
- In a perfectly competitive market, the equilibrium price is reached when marginal social benefit equals marginal social cost.
- At this price, producers will produce and suppliers will supply the quantity demanded, and consumers will consume that quantity.
- If the market price is below the equilibrium price, there will be excess demand as consumers want to buy more than producers are willing to sell.
- This excess demand will push the market price upwards, as consumers will bid higher prices and producers will ask for higher prices.
- As the price rises, producers will increase their quantity supplied, and consumers will decrease their quantity demanded.
- This process will continue until the market price reaches the equilibrium price, where the quantity demanded equals the quantity supplied.
An Increase in the Wage Rate
- An increase in the wage rate for producers can shift the supply curve leftward, leading to a higher equilibrium price and lower equilibrium quantity.
- This shift reflects the higher cost of production for producers, who will now supply less at each price level due to the increased labor costs.
- The higher equilibrium price leads to a decrease in consumer demand, as some consumers are no longer willing or able to pay the higher price.
Market Price and Equilibrium Price
- In a perfectly competitive market, producers and consumers are price takers, meaning they have no control over the market price.
- If the market price is above the equilibrium price, there will be excess supply, as producers are producing more than consumers are willing to buy.
- This excess supply will push the market price downwards, as producers will reduce their pricing to sell their surplus, and consumers will demand lower prices.
- As the price falls, producers decrease their quantity supplied, and consumers increase their quantity demanded.
- This process will continue until the market price reaches the equilibrium price, where the quantity demanded equals the quantity supplied.
Perfect Competition and Efficiency
- Perfectly competitive markets can achieve an efficient allocation of resources, meaning that resources are used in a way that maximizes total social benefit.
- This efficiency occurs because market forces naturally push the market towards the equilibrium price and quantity, where marginal social cost equals marginal social benefit.
- However, perfectly competitive markets can be affected by factors like government intervention or a corrupted financial system, which can disrupt the efficient allocation of resources.
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Description
This quiz explores the concept of equilibrium price in a perfectly competitive market, where marginal social benefit equals marginal social cost. It discusses the impact of demand and supply adjustments on market equilibrium and the effects of wage rate increases on the supply curve. Test your understanding of these essential economic principles.
