Ch.5

• What is the definition of market equilibrium?


  A situation where quantity demanded equals quantity supplied
• What is excess supply?


  When quantity supplied exceeds quantity demanded at the current price
• What is excess demand?


  When quantity demanded exceeds quantity supplied at the current price
• What does ceteris paribus mean in economics?


  It means 'other things being equal'
• Why is ceteris paribus useful in economics?


  It allows economists to analyze market effects without other influences
• What happens when the market is in equilibrium?


  All produced goods are consumed at the equilibrium price
• What is the equilibrium price?


  The price at which quantity demanded equals quantity supplied
• What occurs when the price is too high in a competitive market?


  There is excess supply, leading to a price decrease
• What occurs when the price is too low in a competitive market?

  There is excess demand, leading to a price increase
• What are the effects of a change in consumer preferences on market equilibrium?

  • Increase in demand shifts the demand curve to the right
  • New equilibrium price and quantity increase
  • Example: Health benefits of pasta increase demand
• How does a fall in the price of a substitute affect the demand for a product?


  • Demand for the original product decreases
  • Demand curve shifts to the left
  • Example: Fall in price of fresh pasta decreases demand for dried pasta
• What happens when there is an improvement in production technology?

  • Supply curve shifts to the right
  • Producers can supply more at lower costs
  • New equilibrium price decreases, quantity increases
• What is the impact of an increase in labor costs on market equilibrium?


  • Supply curve shifts to the left
  • Higher production costs lead to higher prices
  • New equilibrium price increases, quantity decreases
• How do changes in demand and supply affect consumer and producer surplus?


  • Consumer surplus decreases as price increases
  • Consumer surplus increases as price decreases
  • Producer surplus increases as price increases
  • Producer surplus decreases as price decreases
• What is the purpose of drawing and labeling diagrams in economics?


  To visually represent market equilibrium and disequilibrium
• Why might a supermarket experience disequilibrium?


  Due to mismatches between supply and demand for cooked chickens
• What are two ways a supermarket could avoid disequilibrium?


  Adjusting production levels and monitoring demand trends
• How might an increase in house prices affect the demand for rented accommodation?


  It may increase demand for rentals as buying becomes less affordable
• What is the significance of the equilibrium point in a market?


  It indicates the price and quantity where supply and demand balance
• How do market forces influence the movement towards equilibrium?


  Producers adjust prices based on supply and demand changes