Market Equilibrium and Policy PDF

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Market Equilibrium and Policy - Key Terms Equilibrium price: the price at which the quantity supplied of a good equals the quantity demanded; the price at which the demand and supply curves intersect. Also known as the marketclearing price Equilibrium quantity: the quantity traded when the quantity supply of a good equals the quantity demanded Shortage: a situation in which the quantity demanded is greater than the quantity supplied at the current market price. Also called excess demand Surplus: a situation in which the quantity supplied is greater than the quantity demanded at the current market price. Also called excess supply Nonprice determinant (demand): a characteristic of the demand for a good other than its own market price. A change in a nonprice determinant of demand changes the relationship between price and quantity demanded. Example: consumer tastes and preferences Change in demand: an increase or decrease in the quantity demanded of a good at every price. Graphically, represented by a shift in the demand curve. Changes in demand are caused by changes in the nonprice determinants of demand Nonprice determinant (supply):a characteristic of the demand for a good other than its own market price. A change in a nonprice determinant of supply changes the relationship between price and quantity supplied ● Number of sellers in a market ● Level of technology used ● Prices of inputs used to produce a good ● Amount of government regulation (subsides/taxes) ● Price of other goods sellers could produce ● The expectations amount producers of future prices Change in supply: an increase or decrease in the quantity supplied of a good at every price. Graphically, represented by a shift in the supply curve. Changes in supply are caused by changes in the nonprice determinants of supply Excise tax: a tax based on the number of units purchased, not on the price paid for a good or service...