Chapter 2.2 - 2.3: The Market Mechanism and Changes in Market Equilibrium

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9 Terms

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<p>Equilibrium</p>

Equilibrium

the price that equates the quantity supplied to the quantity demanded

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Market Mechanism

tendency in a free market for price to change until the market clears

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Surplus

situation in which the quantity supplied exceeds the quantity demanded.

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Shortage

situation in which the quantity demanded exceeds the quantity supplied. This leads to upward pressure on prices as consumers compete for the limited goods available.

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<p>Supply Shift to the right (increase)</p>

Supply Shift to the right (increase)

equilibrium price decreases while equilibrium quantity increases.

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Demand shift to the right (increase)

equilibrium price increases while equilibrium quantity increases.

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Supply shift to the left (decrease)

equilibrium price increases while equilibrium quantity decreases.

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Demand shift to left (decrease)

equilibrium price decreases while equilibrium quantity decreases.

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Relative Magnitude

Predictions depend on this

refers to the comparison of the size or strength of shifts in demand and supply, influencing the overall change in equilibrium price and quantity.