2.1.3 Market Equilibrium

• Demand and supply are fundamental forces that shape market prices and quantities
• Market equilibrium occurs when the quantity demanded equals the quantity supplied
• Match the influencing factors with their effect on demand or supply:

  Consumer income ↔️ Increases demand

  Production costs ↔️ Decreases supply
• The demand curve illustrates the inverse relationship between price and quantity demanded
• Consumers buy more units at lower prices
• Producers offer more goods at higher prices
• Supply is defined as the quantity producers are willing and able to offer at various prices
• The law of demand states that price and quantity demanded are inversely related.


  True
• Factors that shift the supply curve include production costs and technology
• The demand curve represents the inverse relationship between the price of a good or service and the quantity
• What fundamental law does the supply curve illustrate?

  Law of supply
• The demand curve shows the same positive relationship between price and quantity as the supply curve.

  False
• Market equilibrium is graphically represented by the intersection of the demand and supply curves.


  True
• Match the situation with the correct price adjustment:

  Surplus ↔️ Price falls

  Shortage ↔️ Price rises
• Market equilibrium results in a stable equilibrium price with no tendency for change.


  True
• The demand curve shows that as the price of a good increases, the quantity demanded decreases
• Why do producers offer more goods for sale when prices are higher?

  Greater profitability
• The supply curve represents the direct relationship between the price of a good and the quantity supplied
• The law of supply states that there is a positive relationship between price and quantity supplied
• Graphically, market equilibrium is represented by the intersection of the demand curve and the supply curve
• The equilibrium price is the stable market-clearing price where the quantity demanded equals the quantity supplied
• Excess supply results in a surplus, which causes the price to fall
• A shift of the supply curve indicates a change in the underlying supply conditions
• Demand refers to the quantity of a good or service that consumers are willing and able to purchase at different price levels
• The direction of the relationship between price and quantity demanded is inverse.

  True
• Increased supply leads to a lower equilibrium price
• The demand curve is downward-sloping.


  True
• The supply curve illustrates the direct relationship between price and quantity supplied
• Demand is defined as the quantity consumers are willing and able to buy at various prices
• Consumer income influences the demand curve.


  True
• The demand curve shows an inverse relationship, meaning it is downward-sloping
• What fundamental law does the demand curve illustrate?

  Law of demand
• The relationship between price and quantity demanded in the demand curve is direct.

  False
• The supply curve shows a direct relationship between price and quantity supplied
• What is market equilibrium?

  Quantity demanded equals supplied
• When there is a surplus in the market, the price will fall
• What is the equilibrium price?

  Stable market-clearing price
• What does supply refer to in economics?

  Quantity producers offer for sale
• The law of demand states that price and quantity demanded are positively related.

  False
• Steps in the process of price adjustment in the market

  1️⃣ Surplus or shortage occurs

  2️⃣ Price adjusts to surplus or shortage

  3️⃣ Consumers and producers respond

  4️⃣ Market moves towards equilibrium