Ch 7 - Market equilibrium, price mechanism, and market efficiency

Equilibrium

________ is when supply satisfies demand and is equal to it.

factors of production produce

Concept: ________ desired goods and services.

Consumer surplus

________: extra satisfaction gained by consumers from paying a price lower than they prepared to pay.

Price mechanism

forces of supply and demand

Resources

allocated/re-allocated in response to changes in price

Concept

factors of production produce desired goods and services

Consumer surplus

extra satisfaction gained by consumers from paying a price lower than they prepared to pay

M**arket**

consists of buyers and sellers who come together to exchange goods 

**Excess supply**

more is being supplied than demanded at P1, in order to eliminate the surplus, producer must lower the price

**Excess demand**

more is being demanded than supplied at P2, in order to eliminate the surplus, producer must raise the price

**Price mechanism**

moves the market into equilibrium, so that the scarce resources are reallocated.

**Opportunity cost**

is the next best alternative forgone. When a choice is made, there is an opportunity cost.

**Producer surplus**

the excess of actual earnings that a producer makes from a given quantity of output, over and above the amount the producer would be prepared to accept for that output

Allocative efficiency

happens when competitive market is in equilibrium, where resources are allocated in the most efficient way from society’s point of view.

Market efficiency

refers to the degree to which market prices reflect all available, relevant information.

shortage

a state or situation in which something needed cannot be obtained in sufficient amounts.