Competitive Market Equilibrium

Front

What is market equilibrium?

Back

Market equilibrium occurs where demand equals supply, and the market-clearing price and output are established.

Front

What happens if the price of a good is not at the equilibrium level?

Back

There is natural market pressure to push it to the equilibrium price.

Front

What is the rationing function of price?

Back

Price distributes goods so there are no shortages or surpluses due to the central economic problem of scarcity.

Front

What causes changes in market equilibrium?

Back

Changes in either demand or supply.

Front

What happens when there is a change in demand?

Back

A change in a non-price demand factor shifts the demand curve, leading to a change in market equilibrium price and quantity.

Front

What happens when there is a change in supply?

Back

A change in a non-price supply factor shifts the supply curve, changing the equilibrium price and quantity.

Front

What is resource allocation?

Back

The distribution of the factors of production to different markets in the economy.

Front

What is the signalling function of price?

Back

Price changes send information to producers and consumers that market conditions are changing, helping them make decisions.

Front

What is the incentive function of price?

Back

Price changes provide incentives for producers to maximize profits and for consumers to maximize utility.

Front

What is market allocative efficiency?

Back

It occurs when the quantity of resources allocated to a market maximizes the community or social surplus.