Price determination

What is the quantity demanded?

The quantity of a good or service that consumers are willing and able to buy at a given price.

What is the relationship like between the price of a good and the demand of that good?

direct relationship (as the price rises, the quantity demand decreases)

What is a market demand?

the total demand from all the individuals in a market.

Is the supply and demand curve normally straight?

yes.

What is it called when the supply is more then the demand?

excess supply or surplus

What is it called if the demand is more then the supply?

shortage or excess demand

What is it called where the line meet in the middle?

Equilibrium

What should you label on the diagram?

Axes

Curves

Equilibrium

What is the quantity supplied (QS)?

The quantity of a good that suppliers are willing and able to sell at a given price

What do firms do if the price rises?

Profit maximising firms will have an incentive to produce more of a good (this will be illustrated with a supply curve)

Wat is the equilibrium also called and why?

The market clearing point/price because at equilibrium everything that is being offered fr sale is being bought so the market is said to be clear.

What does it mean if the price is either above or below the equilibrium price?

the market will not clear- will have excess demand or excess supply

What will firms do if they have excess supply?

lower their prices and the quantity supplied to their equilibrium because a loss is made on each unit that isn’t sold.

What will firms do if thy have excess demand?

they will increase their prices and the quantity supplied to the equilibrium in order to produce their revenue and profit.

Why is it called an equilibrium price?

when supply and demand are equal there is no tendency for price to change

If the price is ever above or below it then there will always be a movement towards equilibrium.

Explain excess demand.

Quantity demanded is greater then the quantity supplied at a given price.

Explain excess supply.

Quantity supply is greater then the quantity demand at given price.