2.3 Competitive market equilibrium

Market equilibrium

the point where the quantity demanded equals the quantity supplied

Excess demand (shortage)

situation where the quantity demanded exceeds the

quantity supplied at a particular price point.

Excess supply (surplus)

situation where the quantity supplied exceeds the

quantity demanded at a particular price point.

Price mechanism

interaction of demand and supply in a free market which scarce resources are allocated between competing wants/needs

Consumer surplus

the difference between the amount the consumer is willing to pay for a product and the price they have actually paid

Producer surplus

the difference between the amount that the producer is willing to sell a product for and the price they actually do

Social surplus

the combined total of consumer and producer surplus in the market

Allocative efficiency

resources are put to use in the most efficient way from society's point of view

Marginal benefit

the additional benefit a consumer gainst from consuming one more unit of output

Marginal cost

the change in costs resulting from an additional unit of output