8 The interaction of markets

Question 1

Market equilibrium

Answer 1

• point at which the quantity supplied is equal to quantity demanded of a particular product
• supply curve = demand curve
• shows the market price and quantity sold in the market

Question 2

Market disequilibrium

Answer 2

Any situation where supply does not equal demand causing excess supply or excess demand

Question 3

Excess supply

Answer 3

Scenario where market price is too high so there is unsold products

Question 4

Excess demand

Answer 4

Scenario where market price is too low so there is unsatisfied consumers in the market

Question 5

ceteris paribus

Answer 5

• all other things being equal
• an assumption that market operates with total efficiency

Question 6

related markets - substitutes

Answer 6

• bad harvest of bananas = decrease in supply and market price increases
• increase demand for apples as a substitute of bananas = increase in market price of apples and increased quantity supplied and demanded

Question 7

related markets - complements

Answer 7

• recession in economy = increase in demand for bread
• demand shifts to the right and an increase in market price
• increase demand for butter as it is a complement of bread
• increase market price of butter and increase quantity supplied and demanded

Question 8

Evaluation of impact on related markets

Answer 8

• extent of substitutes - weak substitutes still choose expensive brand as they prefer it
• extent of complement - butter has many other uses not just for bread and therefore increased price of bread may not affect butter price
• time frame - short term decrease in price o petrol is unlikely to cause people to buy cars
• size of price change - small change in price for a good that i snot expensive is unlikely to have major impact