2281 · 2.5
Price determination flashcards
Revision flashcards for Cambridge 2281 Price determination (syllabus 2.5). Flip, recall, then mark a real past-paper question.
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What is the equilibrium price?
The price at which the quantity demanded equals the quantity supplied, so the market clears.
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What is the equilibrium quantity?
The quantity bought and sold at the equilibrium price.
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What is a surplus?
Excess supply: at the current price the quantity supplied is greater than the quantity demanded.
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What is a shortage?
Excess demand: at the current price the quantity demanded is greater than the quantity supplied.
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What happens to price when there is a surplus?
Sellers cut the price; demand extends and supply contracts until the surplus is gone.
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What happens to price when there is a shortage?
Sellers raise the price; demand contracts and supply extends until the shortage is gone.
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How do you find equilibrium from two equations?
Set quantity demanded equal to quantity supplied, solve for price, then substitute to find quantity.
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What is a market-clearing price?
Another name for the equilibrium price — the price at which everything offered for sale is bought.
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What does disequilibrium mean?
Any price at which quantity demanded and quantity supplied are not equal, so there is a shortage or a surplus.