Market equilibrium, disequilibrium & price mechanism

What is equilibrium in economics?

Equilibrium is when the quantity demanded by consumers equals the quantity supplied by producers, where there is no excess supply.

What is disequilibrium?

Disequilibrium occurs when the quantity demanded by consumers does not equal the quantity supplied by producers, resulting in either excess supply or excess demand.

What does the price mechanism do?

The price mechanism helps allocate resources, signaling to producers where to focus production based on price changes.

What does it mean when prices are high in terms of resource allocation?

High prices indicate to producers to make more of a product.

What is the rationing function of prices?

The rationing function of prices controls who can buy a product, with higher prices leading to fewer buyers and limiting access.

What is the signaling function of prices?

The signaling function of prices sends messages to producers; when prices rise, it indicates that producers should produce more.

How do incentives affect production and consumer behavior?

Higher prices motivate producers to increase production and may lead some consumers to buy less.