Market Equilibrium Unit 2 (Part 4)

Practice flashcards based on key concepts related to market equilibrium and the interactions of supply and demand.

What is market equilibrium?

the point where the quantity of a good/service that consumers are willing and able to buy equals the quantity that producers are willing and able to sell.

What determines the equilibrium price and quantity?

The interaction of supply and demand determines the equilibrium price and quantity.

What happens when demand increases?

the price is driven up due to a shortage at the old price, leading to a new equilibrium with a higher price and quantity sold.

What happens when demand decreases?

the price is driven down due to a surplus at the old price, leading to a new equilibrium with a lower price and quantity sold.

How does an increase in supply affect the market?

the price is driven down due to a surplus at the old price, resulting in a new equilibrium with a lower price and a higher quantity sold.

What effect does a decrease in supply have?

the price is driven up due to a shortage at the old price, resulting in a new equilibrium with a higher price and a lower quantity sold.

What is a price ceiling?

the maximum price consumers are required to pay for a good or service, designed to protect consumers and often leading to shortages.

What is a price floor?

the minimum price for a good or service, typically set to ensure producers receive adequate income, which can lead to surpluses.

What happens in a market shortage?

the quantity demanded exceeds the quantity supplied, usually due to a price set too low.

What is a surplus in the market?

when the quantity supplied exceeds the quantity demanded, typically because the price is set too high.