2.5+2.6 price determination-equilibrium + price changes

what does equilibrium mean?

a state of balance

what is market equilibrium?

occurs when the quantity demanded of a product is equal to the quantity supplied of the product ie there are no shortages or surpluses.

what si the market clearing price/euilibirum price

Equilibirum price is the price at which the demand curve for a product intersects the supply curve for the product. There si neither excess quantity demanded nor excess quantity supplied and thus the equilibirum quanitity is determiend and hte market is cleared.

when is effect on equilibrium market price and quantitiy when demand shift to right?

if demand shifts to right,the equilibrium market price increases and the equilibrium market quantity increases

when is effect on equilibrium market price and quantitiy when deamnd shifts to left?

if demand shifts to left the equilibrium market price falls and the equilibrium market quantity falls

when is effect on equilibrium market price and quantitiy when supply shifts to right?

if supply shifts to right,equilibrium market price falls and the equilibrium market quantity increases

when is effect on equilibrium market price and quantity when supply shifts to left?

if supply shifts to left,effect on equilibrium market price increases and the equilibrium market quantity falls

what causes a change in the quantity demanded or supplied?

change in its price

what causes a change in demand or supply ?

conditions of demand or supply

how does change in demand or supply affect market price/quantitiy?

a change in demand or supply leads to a new market quantity and a new market price.

what is a shortage?

a shortage occurs when demand exceeds supply because the price is lower than the market equilibrium

what is a surplus?

a surplus is created when supply exceeds demand because the price is higher than the market equilibirum price

When is there excess supply in graph-oversupply leads to fall in price which will in turn lead to reductions in supply?

above market equilibrium

What is excess supply?

excess supply refers to a situation where the market price is above the equilibrium price leading to supply exceeding demand thus creating a surplus in the market

when is there excess demand in graph-firms not producing enough money ,lose money?

under market equilibrium

how to get rid of excess demand?

Firms will rise price back to equilbirum price of P and increase supply.

how to get rid of excess supply?

decrease price until it reaches equilibrium price as well as decreasing supply

what does this diagram show an excess of?What will firms do to fix this?

this diagram shows excess supply. At this price (p2) firms will produce mroe goods (Q2) then that demanded by customers (Q1). Firms will decrease the quantity of goods they produce and also decrease the price of the goods to encourage customers to buy more. The price and the quantity of supplied will continue to fall until the equilibrium point is reached at point P1Q3

what does this diagram show and what will firms do about it?

This diagram shows excess demnd. At this price (P2) firms will produce less goods (Q2) than the demand by customers (Q1). Firms will increase the quantity of goods they produce and also increase the price of the goods to increase profit. Individual customers will offer to buy goods at a higher price. The price and the quantity of supplied will continue to rise until the equilibrium point is reached at point P1Q3

what does a shift to the rigth in the demand curve at equilibriam cause? WHta will firms do about this?

A shift to the right in the demand curve causes excess demand (Q1 Q2) at the old equilibrium price of P1 (

what would a shift to the right int he demand curve cause? What would firms do abotu thsi?

A shift to the right in the demand curve causes excess demand (Q1 Q2) at the old equilibrium price of P1 ($1.20).
Because firms are motivated to make more profit they will have an incentive to increase prices and therefore also produce more goods.
This will raise the equilibrium point to P2 Q3 (or the new equilibrium point on the diagram

what woudl right shfit in supply cause? What woudl firms do about this?

A shift to the right in the supply curve causes excess supply (Q to Q2) at the old equilibrium price. This causes firms to lose money as they will have excess supply and will need to use money to store it. Profit incentive of firms would be to reduce price of the product (P to P1) to sell excess product and would decrease their output. This will cause an extension in the demand curve and contraction along supply curve and will raise equilibrium point to P1Q1.As the quantity supplied decreases the price increases and as the quantity supplied increases the price decreases.

what woudl left shift in supply cause?

A shift to the left in the supply curve causes excess demand at the original equilibrium price (P) so less product supplied than demanded by consumers. To maximise profits firms will increase their price to p1. This causes an extension along the supply curve and contraction along the demand curve.

how do changes in non price factors affect demand and supply?

changes in non price factors that affect demand or supply will cause a change in the equilibrium price and quanitity traded.

how would sales tax on tobacco affect supply and equilibrium price? (could be for any factor that shifts supply curve to left)

a sales tax imposed on tobacco products will shift the supply curve of cigarettes to the elft. This raises the market equilibrium price from P1 to P2 and reduces thr equilibrium quantitiy traded from Q1 to Q2.

how would a subsidy to farmer affect supply and equilibrium price? (this could be for any factor that shifts supply curve to right)

a subsidy to farmers or favourable weather conditions will shift the supply of agricultural output to the right. This reduces the equilibrium price of agricultural output from P1 to P2 but increases the quanitity traded form Q1 to Q2

Price changes cna also occur due to shifts in demand. What will a change in any factor that shifts the demand curve to the right lead to?

ANy factor that shifts the demadn curve to the right will lead to higher prices as well as higher levels of quanitity demanded.

How will higher household income affect equilibrium price and quantity of new cars?

higher household incomes lead to an increase in the demand for new cars, thus shifting the demand curve from D1 to D2. This results in a higher equilibrium price of P2 and a higher equilibrium quantity of Q2.

how will fall in demand change in price and quanitity?

a fall in demand-will cause the demand curve to shift to the left. This will result in a fall in price and a fall in the quantity traded.

how does mass unemployment affect market equilibrium?

Mass unemployment in the economy leads to a fall in the demand for helium balloons. This causes the equilibrium quantity traded to fall to Q2 and the equilibrium price to fall to P2.