functions of price mechanism

• Why do we need assumptions in the demand and supply model?

  To simplify and model demand and supply together
• What is the first assumption of the demand and supply model?

  Goods represented must be identical
• How does the assumption of identical goods affect car prices?

  All cars in the market will have equal prices
• What is assumed about consumers and producers in the market?

  They have complete knowledge about the goods
• What happens if there is imperfect information in the market?

  Prices for identical goods will vary
• What are consumers and producers considered in the market?

  Price takers
• Why can't individuals influence their own demand curves?

  They must accept the market price
• What is market equilibrium?

  Where quantity demanded equals quantity supplied
• What does the crossing point of demand and supply curves represent?

  Price equilibrium and quantity equilibrium
• What occurs at market equilibrium?

  All goods are sold and consumed
• What is necessary for an exchange to happen in a market?

  A price must be determined
• What are the assumptions of the demand and supply model?

  • Goods represented must be identical
  • Consumers and producers have complete knowledge
  • Individual demand does not influence market demand
  • Consumers and producers are price takers
• What is the relationship between demand and supply curves in the market?

  • Demand curve is downward sloping
  • Supply curve is upward sloping
  • They intersect at market equilibrium
• What happens at the equilibrium point in the market?

  • Quantity demanded equals quantity supplied
  • All goods are sold and consumed
  • No oversupply or under demand