market equilibrium

Question 1

what is market equilibrium?

Answer 1

a market situtation that occurs at any price and quantity where quantity demanded and quantity supplied are equal

Question 2

what is equilibrium price?

Answer 2

equilibrium price is the price when quantity demanded equals quantity supplied

Question 3

how to know when market is equilibrium graphically?

Answer 3

when demand curve intersects supply curve

Question 4

what is equilibrium quantity?

Answer 4

equilibrium quantity is the amount of goods or services bought and sold at equilibrium price

Question 5

what happens when the market is not in equilibrium?

Answer 5

if the price is above equilibrium price, quantity supplied > quantity demanded (surplus) -> firms will lower the price until equilibrium is attained

if the price is below equilibrium price, quantity supplied < quantity demanded (shortage)-> firms need to up the price until equilibrium is attained

Question 6

what is the rule?

Answer 6

price will always change when market is not at equilibrium

Question 7

what is the exception of the rule?

Answer 7

government intervenes (price ceiling/price floor)

Question 8

what is price ceiling?

Answer 8

a legal established maximum price a seller can change (so more people can afford)

Question 9

why impose price ceiling?

Answer 9

price ceiling is imposed when the current equilibrium price is considered too high

Question 10

how to make price ceiling effective?

Answer 10

must be set below market price equilibrium

Question 11

what is the result of price ceiling?

Answer 11

quantity supplied < quantity demanded (shortage)

Question 12

how to draw market equilibrium graph

Answer 12

refer to notes

Question 13

what is price floor?

Answer 13

a legal established minimum price seller can be paid

Question 14

why implement price floor

Answer 14

price floor is implemented when market equilibrium price is considered too low

Question 15

what is the condition for price floor to be effective?

Answer 15

price floor needs to be set higher than market equilibrium price

Question 16

what is the result of price floor?

Answer 16

quantity supplied > quantity demanded (surplus)

Question 17

what happens when there is a increase in demand?
draw

Answer 17

demand curve shifts to the right and supply curve remains unchanged
equilibrium price and equilibrium quantity increases

Question 18

what happens when there is a decrease in demand?
draw

Answer 18

demand curve shifts leftward
both equilibrium price and equilibrium quantity decreases

Question 19

what happens when there is a increase in supply?
draw

Answer 19

demand curve remains, supply curve shifts to the right
equilibrium price decrease, equilibrium quantity increase

Question 20

what happens when there is a decrease in supply?
draw

Answer 20

demand curve remains, supply curve shifts leftwards
equilibrium price increase, equilibrium quantity decrease

Question 21

what happens when there is a increase in both demand and supply?
draw

Answer 21

demand curve and supply curve shifts to the right
equilibrium quantity will always increase

Question 22

what happens when increase in demand > increase in supply?

Answer 22

equilibrium price and equilibrium quantity increases

Question 23

what happens when increase in demand < increase in supply?
draw

Answer 23

equilibrium price decrease, equilibrium quantity increase

Question 24

what happens when increase in demand = increase in supply?
draw

Answer 24

equilibrium price remains unchanged, equilibrium quantity increases

Question 25

what happens when decrease in demand > decrease in supply? draw

Answer 25

both equilibrium price and equilibrium quantity will decrease

Question 26

what happens when decrease in demand < decrease in supply? draw

Answer 26

equilibrium price increase, equilibrium quantity decrease

Question 27

what happens when decrease in demand = decrease in supply?

Answer 27

equilibrium price will be unchanged, equilibrium quantity is always decreasing

Question 28

how to describe market equilibrium in tabular and graphical form?

Answer 28

tabular: creating a table to show how quantity demanded and quantity supplied change at different prices graphical: when quantity demanded curve intersects quantity supplied curve

Question 29

what is a surplus and shortage?

Answer 29

surplus is when quantity supplied is more than quantity demanded shortage is when quantity supplied is less than quantity demanded

Question 30

how to distinguish between price ceiling and price floor?

Answer 30

price ceiling: a legal established maximum price a seller can charge price floor: a legal established minimum price a seller can be paid

Question 31

Suppose the government of Brazil imposes a price ceiling on cassava flour, a staple food and a substitute in consumption for wheat flour. Explain what happens to the equilibrium price and quantity of wheat flour. Illustrate your answer with two. draw 2 diagrams

Answer 31

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Question 32

A disease destroys a large portion of cocoa plantations in Ghana, significantly reducing the cocoa supply. At the same time, early research suggests that dark chocolate (made from cocoa) may help improve heart health, but the findings are not yet conclusive. Explain, with an appropriate diagram, what happens to the equilibrium price and quantity of dark chocolate.

Answer 32

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Question 33

The table below shows the market for sugar. Price ($/kg) Quantity Demanded (kg) Quantity Supplied (kg) 12 10 130 10 30 100 8 50 70 6 70 70 4 90 40 (a) What is the equilibrium price and equilibrium quantity? (b) Explain what happens in the market if the price of sugar is currently at $10. (c) Suppose the government imposes a price ceiling on sugar.   (i) From the values in the above table, what is the price ceiling?   (ii) Describe the effects of the price ceiling.

Answer 33

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