Economics 10 Q3 - Equilibrium

What is the market equilibrium?

• When quantity demanded is less than quantity supplied

• When the market price is above the equilibrium price

• When quantity demanded equals quantity supplied at a given price

• When demand and supply curves do not intersect

Answer explanation

Explanation: Market equilibrium occurs when the quantity demanded by consumers equals the quantity supplied by producers at a particular price. This is the point where the demand and supply curves intersect.

A shortage occurs in a market when:

• The price is set above the equilibrium price

• Demand is greater than supply at the prevailing price

• Supply is greater than demand at the prevailing price

• The price is set at the equilibrium price

Answer explanation

Explanation: A shortage, or excess demand, occurs when the quantity demanded exceeds the quantity supplied at the current price, leading to upward pressure on prices as consumers compete for limited goods.

If there is an increase in consumer incomes and the good is normal, what happens to the equilibrium price and quantity?

• Both price and quantity decrease

• Price decreases and quantity increases

• Both price and quantity increase

• Price increases and quantity decreases

Answer explanation

Explanation: When consumer incomes increase, demand for normal goods (goods whose demand increases as income rises) shifts to the right, raising both the equilibrium price and quantity.

If the supply curve shifts to the left, what is the likely effect on the market equilibrium?

• Price decreases and quantity increases

• Price increases and quantity decreases

• Price and quantity both increase

• Price and quantity both decrease

Answer explanation

Explanation: A leftward shift in the supply curve (a decrease in supply) leads to higher prices and lower quantities, as producers offer less at every price level.

What is the role of the price mechanism in a market economy?

• It helps to allocate resources efficiently

• It determines government intervention in the market

• It only benefits producers

• It prevents shifts in demand and supply

Answer explanation

Explanation: The price mechanism in a free market economy determines how resources are allocated based on supply and demand signals. Prices adjust to reflect the relative scarcity or abundance of goods and services.

What is consumer surplus?

• The benefit consumers receive when they pay less than what they are willing to pay

• The difference between total revenue and total cost

• The loss consumers incur when prices rise

• The additional profit earned by producers

Answer explanation

Explanation: Consumer surplus is the difference between the maximum price consumers are willing to pay and the actual price they pay, representing a net benefit to consumers.

Producer surplus refers to:

• The benefit producers receive when they sell at a higher price than they are willing to accept

• The total cost of production

• The difference between the quantity supplied and quantity demanded

• The total revenue earned by producers

Answer explanation

Explanation: Producer surplus is the difference between the price producers are willing to accept and the price they actually receive, representing a net benefit to producers.

If demand increases and supply decreases simultaneously, the equilibrium price will:

• Increase

• Decrease

• Stay the same

• It cannot be determined

Answer explanation

Explanation: An increase in demand coupled with a decrease in supply both exert upward pressure on prices, making a price rise almost certain. The quantity change is uncertain because the effects of demand and supply shifts offset each other.

A surplus in a market indicates that:

• The price is set below the equilibrium price

• Quantity demanded exceeds quantity supplied

• There is excess supply at the current price

• Supply curve shifted left

Answer explanation

Explanation: A surplus, or excess supply, occurs when the quantity supplied exceeds the quantity demanded at the current price, leading to downward pressure on prices.

Which of the following describes how a change in price eliminates a shortage?

• Higher prices discourage demand and encourage supply, moving the market toward equilibrium

• Higher prices encourage demand and discourage supply, creating excess demand

• Lower prices encourage supply and discourage demand, increasing surplus

• Lower prices increase consumer and producer surplus

Answer explanation

Explanation: When there’s a shortage, higher prices reduce demand (as fewer consumers are willing to pay the higher price) and increase supply (as producers are willing to sell more), pushing the market toward equilibrium.