Chapter 6

what is disequilibrium in the market?

If the price in a particular market is not set at the point where supply and demand are equal, there will be disequilibrium in the market.

what are the results of disequilibrium in the market?

excess demand and excess supply

diequilibrium in the market

happens when a price in a particular market is not set at the point where supply and demand are equal

higher demand will lead to

higher prices

changes in demand

if demand increases, price will rise as consumers want the product. This would shift the demand curve to the right. However if demand decreases, producers are forced to lower prices otherwise they are left with unsold stock, shifting the curve to the left.

Changes in supply

if supply increases, price will fall as producers try to be competitive, shifting the curve to the right. if supply decreases,

Excess demand (disequilibrium in the market)

if the price in a market is below the equilibrium price, demand and supply will not be equal

Excess supply (disequilibrium in the market)

if the price in a market is set above the equilibrium price demand and supply are not the same

What is the equilibrium price?

is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.

what is excess demand?

is the position where demand is greater than supply at a given price and there are shortages in the market.

what is excess supply?

is the position where supply is greater than demand at a given price and there are unsold goods in the market.

What is total revenue?

it is the amount of revenue generated from the sale of goods.

higher supply will lead to

lower prices

equilibrium price is also known as a

market clearing price

formula for total revenue ...

price x quantity sold

why is it also known as the market clearing price?

the amount supplied to the market is completely bought up by consumers. There are no buyers without goods and no sellers left with unsold stock, therefore, the market is cleared.

Changes in Both Demand and Supply

would change the equilibrium altogether