Chapter 3 - Market Equilibrium

How will an decrease in demand impact equilibrium?

It will decrease prices. Equilibrium will be lower.

How should businesses respond to surplus?

Businesses should reduce prices.

How should businesses respond to shortage?

They should increase prices

How will an increase in supply impact equilibrium?

An increase in supply would make a decrease in prices. Would make equilibrium lower.

What is market price?

Economic price for which a good or service is offered in the marketplace

How will an increase in demand impact equilibrium?

Increases in demand would cause an increase in prices. Would make equilibrium higher.

Consumer surplus

Is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price

Producer Surplus

Is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price

A consumer surplus of $9 and Nathan experiences a producer surplus of $3

Jennifer buys costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan was $30. Jennifer experiences

What is shortage?

Occurs when the quantity demanded is greater than the quantity supplied.

What is surplus?

Occurs when the quantity supplied is greater than the quantity demanded.

Market clearing price

The price of a good or service at which quantity supplied is equal to quantity demanded, equilibrium price

What is market equilibrium?

When the supply and demand curves intersect, the market is in equilibrium. This is where the quantity demanded and quantity supplied are equal.

How will a decrease in supply impact equilibrium?

Increase prices. Equilibrium would be higher.