L4 - Equilibrium Flashcards
1
Q
What is it called when Price is below or above its optimum?
A
Market Price determined by ‘invisible hand’
- Whenever P below optimum= Excess demand
- Whenever P above optimum= Excess Supply
(SEE DIAGRAM)
2
Q
What are the role of prices?
A
- Prices convey information
- Prices ration scarce resources (Since resources are limited, need a mechanism to decide who gets what.Those willing and able to pay get the good)
- Prices determine income
DEPENDS ON: S and D of services you can sell
3
Q
What is the Law of Price Adjustments?
A
- When Supply exceeds demand, price will fall since prices too high initially
- When demand exceeds supply price will rise, excess demand (prices too low and so supply incentive to raise prices)
4
Q
Summaries on notes
A
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