Market Dynamics and Equilibrium: Understanding Supply and Demand Interactions

The video explains market dynamics, focusing on how buyers and sellers interact to determine prices. It covers the concept of market equilibrium, where supply and demand balance, leading to stable prices. The video uses a soft drink market example to illustrate equilibrium and discusses how changes in demand or supply can shift equilibrium. It outlines four causes of price changes and examines how firm entry and exit affect market equilibrium.

What happens to demand and supply when prices increase?

• Demand decreases, supply increases

• Demand increases, supply decreases

• Both demand and supply increase

• Both demand and supply decrease

What is the equilibrium price?

• The price at which demand exceeds supply

• The price at which supply exceeds demand

• The price at which demand and supply are equal

• The price at which there is no demand

Why is the market clearing price considered efficient?

• It leads to wasted output

• It results in excess supply

• It results in excess demand

• It ensures no excess supply or demand

What happens to demand when prices are higher than equilibrium?

• Demand increases

• Demand decreases

• Demand remains constant

• Demand becomes infinite

How do higher prices affect supply?

• They encourage supply

• They make supply unpredictable

• They have no effect on supply

• They discourage supply

What causes shifts in the demand or supply curve?

• Changes in government policy

• Changes in consumer preferences only

• Changes in price only

• Changes in underlying factors affecting demand and supply

What happens when there is an increase in demand?

• The supply curve shifts right

• The supply curve shifts left

• The demand curve shifts right

• The demand curve shifts left

What is the effect of a decrease in supply?

• Price and output both increase

• Price decreases, output increases

• Price increases, output decreases

• Price and output both decrease

Why might firms enter a competitive market?

• Due to government incentives

• Due to lack of competition

• Due to expectation of profit

• Due to high barriers to entry

What is the result of a supply curve shifting to the right?

• Price decreases, output increases

• Price increases, output decreases

• Price and output both increase

• Price and output both decrease