1.2.6 Price Determination Flashcards
1
Q
What is point labbled “y”?
A
Excess supply - the price is too high
2
Q
What is point labbled “x”?
A
Excess demand - when the price is too low
3
Q
What is market equilibrium?
A
When the quantity demanded by consumers is balanced with the quantity supplied by firms
4
Q
How do market forces eliminate excess supply?
A
Market forces will result in a contraction along the supply curve, and an extension along the demand curve. The shortage in demand will result in a fall in the price as firms reaslise they have to lower prices in order to sell their goods.
5
Q
How do market forces eliminate excess demand?
A
There will be an extension along the supply curve, and a contraction along the demand curve. Prices will then increase in order to ration demand
