Equilibrium

Question 1

Equilibrium

Answer 1

A state of rest, self-perpetuating in the absence of an outside disturbance.

Question 2

Equilibrium Graph

Answer 2

• Both demand & supply curves are drawn on the diagram.
• at price Pe, and the quantity Qe both is demanded and supplied. The market is at a state of equilibrium.
• The market is in equilibrium at Pe, since the amout of coffee that people wish to buy at the price, Qe, is equal to the amount of coffee that suppliers wish to sell at that price.
• Pe, is a market clearing price, since everything produced in the market will be sold.
• The market is in equilibrium, until there is an outside disturbance to change the equilibrium.

Question 3

Self- righting equilibrium

Answer 3

If you try to move away from it, without an outside disturbance, it will return to the original position.

Question 4

When there is a shift

Answer 4

The market will, if left to act alone, adjust to a new equilibrium market-clearing price.

Question 5

How price mechanism helps to allocate scarce resources?

Answer 5

• Resources are allocated, and re-allocated in response to changes in price.
• If there is an increase in the price of a goof, due to an increase in demand for the good, then this gives a signal to the producers that concumers wish to buy this good.
• assuming producers are rational, and wish to maximise their profits, then a higher price will give producers an incentives to produce more of a good.
• producers will allocate more resources towards those goods where the demand is highest. This is where they will be able to make more profit.

Question 6

Comcumer surplus

Answer 6

The extra satisfaction gained by concumers from paying a price that is lower than that which they are prepared to pay.

Question 7

Producer Surplus

Answer 7

The excess of actual earnings that a producer makes from a given quantity of output, over and above the amount the producer would be prepared to accept for that output.

Question 8

Social efficient/ State of allocative efficiency

Answer 8

When a market is in equilibrium, with no external influences and no external effects. Meaning that the resources are allocated in the most efficient way from society’s point of view.

Question 9

Community surplus

Answer 9

The sum of concumer and producer surplus. It is the total benefit to society.

Question 10

Community surplus is maxamised..

Answer 10

At the equilibrium, where demand is equal to supply. The point of allocative efficiency.

Question 11

Marginal Social Cost Curve

Answer 11

The supply curve, when costs of the industry are equal to the costs to society.

The supply curve of a market is largely determined by the industries costs of production. Assuming the vosts of industry are equal to the costs of society, then the supply curve represents the social cost curve.

Question 12

Marignal Social Benefit Curve

Answer 12

The demand curve, when the utility or benefit in the market are equal to the benefits to society.

The Demand curve of a market is determined by the utility/benefits that the concumption of a good/service brings to the concumer. Assuming that the benefits of the market are equilavent to the benefits of society, then the demand curve represents the social benefit curve.

Question 13

Excess supply

Answer 13

Producers supply more than is demanded by the market, because the price is above equilibrium.

Question 14

Excess Demand

Answer 14

Consumers demand more than is being supplied by the market because the price is below equilibrium.