Supply and Demand

• The price mechanism

  The process by which prices change in response to changes in supply and demand, establishing a new market equilibrium
• Signalling

  A change in the market signals to producers what consumers want. For example, longer queues
• Incentivising

  The change in the market incentivises producers how to respond. For example, higher profit motive.
• Example of the incentive function

  New firms emerging in the market. Exsisting firms using up spare capacity
• Disequilibrium

  When demand is not equal to supply
• Rationing

  Excess demand or supply is rationed away and a new equilibrium is established