Market Definitions Supply Equilibrium
Market: Consumers and Producers come together. Co-ordination of decisions by consumers and
producers. Resources/goods/services are allocated.
Surplus in Supply: Downwards pressure on Price
Shortage in Supply: Upwards pressure on Price
Equilibrium: No surplus or shortage, no pressure for change. Planned demand = planned supply, no Initial EQ point of Pe, Qe.
excess demand/supply Increase in supply of Laptop’s
Market Clearing Price: EQ price, the price in which all goods that are supplied are demanded due to excess components
Disequilibrium: Any position in the market where demand and supply are not equal - Supply shift outwards, more
Shortages: Excess demand over supply (Seller’s market) supplied at every given price.
Surpluses: Excess supply over demand (Buyer’s market) At Pe, Q1 now supplied.
Surplus in supply.
Functioning of price: - Surplus Downwards
Signalling function of price: Prices give info that allows buyers + sellers in market to plan + Pressure on price, leads to
coordinate Contraction in supply +
Incentive function of prices: Creates incentive for people to change economic behaviour. Extension in demand
Rationing function of price: Rising prices ration demand for a product - New EQ of P2, Q2
Allocative function of price: Changing relative prices allocate scarce resources away from excess
supply markets and into excess demand ones.
Inter-Related Markets Demand Equilibrium
- Initial EQ point of Pe, Qe.
Jointly Demand/Complements: The supply increase in one good directly leads to the demand
increase for another (e.g. Tennis rackets and Tennis balls) Increase in Cereal demanded,
Competitive Demand/Substitutes: A fall in supply in one good directly leads to an increase in More demanded at every
demand for another (e.g. Fall in Supply of Coke leads to increase in Demand for Pepsi) given price.
Derived Demand: An increase in demand for one good directly leads to an increase in demand for At Pe, Q1 now supplied.
another. (e.g. Cars and Steel) Deficit in supply.
Composite Demand: An increase in demand for one good means there is less available for another. - Upwards pressure on price,
(e.g. Increase in demand for Oil for Petrol leads to a decrease in supply for Oil for Chemicals) leads to Contraction in
Joint Supply: An increase in demand for one good leads to an increase in supply for another. (e.g. demand and Extension in
Beef and Leather)
supply.
- New EQ point P2, Q2
Market: Consumers and Producers come together. Co-ordination of decisions by consumers and
producers. Resources/goods/services are allocated.
Surplus in Supply: Downwards pressure on Price
Shortage in Supply: Upwards pressure on Price
Equilibrium: No surplus or shortage, no pressure for change. Planned demand = planned supply, no Initial EQ point of Pe, Qe.
excess demand/supply Increase in supply of Laptop’s
Market Clearing Price: EQ price, the price in which all goods that are supplied are demanded due to excess components
Disequilibrium: Any position in the market where demand and supply are not equal - Supply shift outwards, more
Shortages: Excess demand over supply (Seller’s market) supplied at every given price.
Surpluses: Excess supply over demand (Buyer’s market) At Pe, Q1 now supplied.
Surplus in supply.
Functioning of price: - Surplus Downwards
Signalling function of price: Prices give info that allows buyers + sellers in market to plan + Pressure on price, leads to
coordinate Contraction in supply +
Incentive function of prices: Creates incentive for people to change economic behaviour. Extension in demand
Rationing function of price: Rising prices ration demand for a product - New EQ of P2, Q2
Allocative function of price: Changing relative prices allocate scarce resources away from excess
supply markets and into excess demand ones.
Inter-Related Markets Demand Equilibrium
- Initial EQ point of Pe, Qe.
Jointly Demand/Complements: The supply increase in one good directly leads to the demand
increase for another (e.g. Tennis rackets and Tennis balls) Increase in Cereal demanded,
Competitive Demand/Substitutes: A fall in supply in one good directly leads to an increase in More demanded at every
demand for another (e.g. Fall in Supply of Coke leads to increase in Demand for Pepsi) given price.
Derived Demand: An increase in demand for one good directly leads to an increase in demand for At Pe, Q1 now supplied.
another. (e.g. Cars and Steel) Deficit in supply.
Composite Demand: An increase in demand for one good means there is less available for another. - Upwards pressure on price,
(e.g. Increase in demand for Oil for Petrol leads to a decrease in supply for Oil for Chemicals) leads to Contraction in
Joint Supply: An increase in demand for one good leads to an increase in supply for another. (e.g. demand and Extension in
Beef and Leather)
supply.
- New EQ point P2, Q2
