Market Equilibrium And Market Disequilibrium

Question 1

Law of demand

Answer 1

Quantity demanded of a good decreases as its price rises in a period of time, other things being equal

Question 2

Law of supply

Answer 2

Quantity supplied of a good increases, as its price rises in a period of time as things being equal

Question 3

Market equilibrium

Answer 3

Quantity demanded is equal to quantity supplied at a specific price level

Question 4

Shortage (excess demand)

Answer 4

Quantity demanded is larger than quantity supplied at a market price below the equilibrium

Question 5

Surplus

Answer 5

Quantity demanded is smaller than quantity supplied at a market price above the equilibrium price

Question 6

Nominal price

Answer 6

Price expressed in terms of money

Question 7

Relative price

Answer 7

Price expressed in terms of the quantity of another good

Question 8

Law of demand (relative price)

Answer 8

When the same amount of cost is added to both the higher quality and low quality goods, the relative price of the higher quality good will decrease while the relative price of low quality will increase. According to the law of demand people will buy relatively more of the higher quality and relatively less of the lower quality.