Market equilibrium and disequilibrium

What is disequilibrium?

A state in the market where demand and supply of goods and services are not equal, leading to imbalances and potential disruptions.

What can persistent disequilibrium result in?

Shortages or surpluses in the market.

How can disequilibrium be caused?

By changes in consumer preferences, government regulations or unexpected events like natural disasters.

How can disequilibrium create opportunities for entrepreneurs?

They can identify and exploit profitable market imbalances.

How can equilibrium be restored?

By making price adjustments or changes in production.

What is an economic market?

A platform where buyers and sellers interact to exchange goods or services, determining prices through demand.

What can economic markets be?

Physical or virtual spaces where transactions take place.

How might markets be categorised?

Based on competition levels. eg. perfect competition, monopolistic competition, oligopoly or monopoly.

What factors affect market demand and supply?

• Consumer preferences

• Income levels

• Production costs

• Government policies

When does market equilibrium occur?

When quantity demanded equals quantity supplied, establishing a stable price level.

How is equilibrium determined?

By the intersection of demand and supply curves.

What happens to price if there is excess demand?

Prices tend to rise.

What happens to price if there is excess supply?

Prices tend to decrease.

How is equilibrium achieved in a perfectly competitive market?

When the marginal costs equals the marginal revenue.

What can cause equilibrium price and quantity to change?

Shifts in demand or supply.

What is the price mechanism?

Refers to how prices are determined in a market economy based on supply and demand.

What does the price mechanism help with?

Allocating scarce resources efficiently.

How does price serves as signals for producers?

It guides producers and consumers in making decisions.

What are scarce resources?

Refer to limited goods and services that are insufficient to satisfy all human wants and needs.

What does scarcity lead to the need for?

Allocation and trade offs.

What is opportunity cost?

The value of the next best alternative forgone when a choice is made.

What does efficient resource allocation aim to do?

Maximize utility and benefit society.

How can innovation and technology help alleviate scarcity?

Increasing resource productivity.