Market Equilibrium Flashcards

These flashcards cover key concepts about market equilibrium, the effects of price changes, and shifts in demand and supply based on a recent lecture.

What is market equilibrium?

Market equilibrium occurs when quantity demanded equals quantity supplied, and is the point where the demand and supply curves intersect.

What happens when the market price is too high?

When the price is too high, quantity supplied exceeds quantity demanded, resulting in a surplus.

How do firms respond to a surplus in the market?

Firms lower their prices to sell the unsold product, causing quantity supplied to decrease and quantity demanded to increase until equilibrium is reached.

What occurs if the market price is too low?

If the price is too low, quantity demanded exceeds quantity supplied, leading to a shortage.

How do firms react to a shortage in the market?

Firms raise their prices as they can sell more at a higher price, increasing quantity supplied and decreasing quantity demanded until equilibrium is achieved.

What is an example of a demand decrease for hot dogs?

A research study indicating that processed meats increase cancer risk leads consumers to demand fewer hot dogs.

What happens to the demand curve when demand decreases?

The demand curve shifts to the left, resulting in a surplus at the current price.

What is the impact of a decrease in supply due to avian flu on the market for eggs?

The avian flu decreases supply, while the increase in demand for eggs around Easter creates a new equilibrium price and quantity.

What is true when both supply and demand shift simultaneously?

If both supply and demand shift, we can only determine the effect on one variable with certainty; the effect on the other variable remains unclear and depends on the shape of the curves.

What is the outcome when both supply and demand increase?

The resultant change in equilibrium price or quantity cannot be determined without additional information about the size of the shifts.