Untitled Flashcards Set

Q: What is equilibrium in a market?
A: The price at which the quantity demanded is equal to the quantity supplied.

Q: What happens when the market price is above equilibrium?
A: A surplus occurs, causing suppliers to decrease prices.

Q: What happens when the market price is below equilibrium?
A: A shortage occurs, causing prices to increase.

Q: How does a free market maximize gains from trade?
A: By ensuring goods are bought by those willing to pay the most and sold by those with the lowest costs.

Q: What did Vernon Smith’s 1956 experiment prove?
A: The supply and demand model accurately predicts market behavior.

Q: What happens when supply decreases?
A: Prices rise, and quantity decreases.

Q: What happens when demand decreases?
A: Prices fall, and quantity decreases.

Q: What is the difference between demand and quantity demanded?
A: Demand shifts the entire curve, while quantity demanded moves along a fixed curve.

Q: What is the difference between supply and quantity supplied?
A: Supply shifts the entire curve, while quantity supplied moves along a fixed curve.

Q: How does the supply and demand model explain oil prices?
A: Changes in supply or demand affect oil prices and quantities traded.