Questions and Answers
Both excess supply and excess demand are a result of?
How do supply and demand coordinate to determine prices?
They work together.
What does a car dealer face when there are not enough customers for the supply of new cars?
Disequilibrium.
If the quantity supplied is greater than the quantity demanded, what must happen to the price in order to reach equilibrium?
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Which occurs during market equilibrium? (Check all that apply)
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What needs to happen to the price indicated by p2 on the graph showing excess supply to achieve equilibrium?
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In order to achieve equilibrium, what else must be included on the graph showing demand?
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Why is the price indicated by p2 on the graph of excess supply higher than the equilibrium price?
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What needs to happen in order to stop disequilibrium from occurring in the graph showing excess demand?
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Study Notes
Market Price Determination
- Disequilibrium occurs when there is either excess supply or excess demand in the market.
- Supply and demand work together to establish market prices, coordinating to balance each other.
Conditions of Disequilibrium
- A car dealer with too many new cars but insufficient customers experiences disequilibrium.
- When quantity supplied exceeds quantity demanded, the price must decrease for the market to reach equilibrium.
Market Equilibrium Characteristics
- Market equilibrium is achieved when supply meets demand at a specific price and quantity.
- In equilibrium, supply must not exceed demand, contradicting conditions where supply is greater.
Adjustments in Price
- A price above the equilibrium level (e.g., indicated by p2) results in excess supply, necessitating a price decrease to achieve equilibrium.
- Conversely, during excess demand, increasing the price of goods helps rectify the disequilibrium.
Graphical Analysis
- A supply curve must be included on demand graphs for a complete analysis to determine the equilibrium point.
- The relationship between price and quantity demanded indicates that as prices increase, the quantity demanded also rises, illustrating the dynamic of demand adjustments.
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Test your understanding of market price determination with these flashcards. Learn key concepts such as equilibrium, disequilibrium, and the interplay of supply and demand. Perfect for students studying economics and market mechanisms.
