Markets Flashcards
1
Q
The market equilibrium
A
2
Q
Equilibrium - diagram
A
- When the supply of goods and services at a given price exactly matches the demand for goods and services at that price
3
Q
Concept of the equilibrium price
A
Equilibrium means a state of equality between demand and supply
- The equilibrium price in a market is known as the market clearing price
- At this price there is no excess demand or supply
- The quantity that produces are wish to sell equals the quantity that consumers wish to buy at that price
4
Q
When price changes we have…
A
Disequilibrium
5
Q
Excess demand
A
- When excess demand occurs (consumers are willing to buy more than is supplied) the businesses realise the price is too low.
- Businesses will then raise the prices of their goods or services and therefore is an incentive to increase supply.
- As price rises demand contracts back
- Queues and empty shelves are expected
6
Q
Excess demand diagram
A
7
Q
Excess supply
A
8
Q
Excess supply
A
9
Q
The concept of the equilibrium price
A
- Without a shift in demand and/ or there will be no change in market price
- Changes in the conditions of market demand or supply will shift the demand or supply curves.
This will cause changes in the equilibrium price and quantity in the market. - Equilibrium = market clearing
10
Q
Markets
A
- A market is the place or platform where buyers and sellers meet to exchange a product.
- Prices are established
- Markets require:
- Consumers (buyers)
- Producers or firms (sellers)
- Goods or services to trade
- A medium of exchange
11
Q
4 Functions of the price mechanism
A
- Allocate
- Signal
- Ration
- Incentive
12
Q
Changes in market price
A
Changes in market price act as a signal about how scarce resources should be allocated.
- A rise in price encourages producers to produce more of the good but encourages consumers to use an alternative substitute good (therefore rationing the product)
- A fall in price leads to an expansion of demand but makes it less profitable for a business to supply the good/service
13
Q
The rationing function
A
When there is a shortage of a product, product will rise and deter some consumers from buying the product
14
Q
The signalling function
A
Changes in price provides information to both producers and consumers about changes in market conditions.
- When there is a shortage of a good/service, price is increased - leaving only those with willingness and ability to pay to buy
