Y1, 5) Market Equlibrium and Disequilibrium

Question 1

What is the Free market?

Answer 1

Any place where buyers and sellers exchange goods and services without government intervention

Question 2

What is equilibrium?

Answer 2

Where demand = supply (market clearing)

Question 3

How does price affect resource allocation?

Answer 3

Allocates scarce resources efficiently
Ration scarce resources by encouraging/discouraging consumption
Signal excess demand/ supply
Incentivises/ de-incentivises supply to increase profit

Question 4

In a free market what is excess supply/ demand effect on price?

Answer 4

Excess demand-> Price rise
Excess supply -> Price falls