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2.5 Price Determination
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2.5 Price Determination
What is meant by the equilibrium price in the market for a good?
the average price paid by consumers
the price at which maximum profit is made
the price at which the producer breaks even
the price at which the supply and demand curves intersect
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What is meant by equilibrium in a market?
where products offered for sale equal consumer demand
where profit is at the expected level
where the quantity of inputs equals the quantity of output
where total costs equal total revenue
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What effect does an indirect tax have on the equilibrium price and quantity in a market?
Price increases, quantity increases
Price increases, quantity decreases
Price decreases, quantity increases
Price decreases, quantity remains unchanged
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What happens in the market when there is excess demand?
Prices decrease to eliminate the excess demand
Prices increase to eliminate the excess demand
Prices remain unchanged as buyers and sellers negotiate
Both buyers and sellers exit the market
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What does a surplus or excess supply indicate in the market?
Prices are too high
Prices are too low
Prices are at equilibrium
Prices are irrelevant
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A newspaper reported that ‘The world market for coffee has returned to equilibrium’.
Which situation supports this statement?
A sequence of poor harvests resulted in shortages.
Decreased transport costs led to a surplus of supply.
Farmers matched demand by planting more coffee bushes.
The price of coffee was fixed between producers.
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When demand exceeds supply for a product, what does the price mechanism usually lead to?
An increase in government intervention to control prices
A decrease in demand as consumers find substitutes
An increase in the price of the product
A surplus of the product in the market
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What does it mean when a market is in disequilibrium?
Supply and demand are balanced
Excess supply or demand exists
The market is not functional
Prices are fixed by the government
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In a market characterised by excess supply, what is likely to happen in the absence of intervention?
Producers will reduce prices to eliminate the excess supply
Producers will increase prices to match the excess supply
Consumers will increase demand to match the excess supply
Consumers will decrease demand to match the excess supply
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How do market forces typically respond to a shortage?
Prices decrease to eliminate the shortage
Prices increase to eliminate the shortage
Prices remain unchanged despite the shortage
Producers reduce supply to address the shortage
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What happens to the equilibrium price and quantity when both demand and supply increase simultaneously, with a larger increase in demand?
Price increases, quantity is indeterminate
Price decreases, quantity increases
Price increases, quantity increases
Price remains unchanged, quantity increases
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If the price in a market is above the equilibrium price, what is likely to occur?
Excess demand and shortage
Excess supply and surplus
Equilibrium price and quantity
No impact on market dynamics
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In a competitive market, if the government imposes a price floor above the equilibrium price, what is the likely result?
A surplus or excess supply
A shortage or excess demand
No change in market dynamics
An equilibrium price and quantity is reached
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What does a decrease in both demand and supply lead to in terms of equilibrium price and quantity?
Equilibrium price falls, quantity is indeterminate
Equilibrium price rises, quantity falls
Equilibrium price falls, quantity falls
Equilibrium price is indeterminate, quantity falls
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In an agricultural market, if the equilibrium price of wheat decreases and the equilibrium quantity increases, what is the most likely cause?
An increase in supply and decrease in demand
A decrease in supply and increase in demand
An increase in both supply and quantity demanded
A decrease in both supply and demand
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