Market Equilibrium and Price Reactions

The video explains market equilibrium, where quantity demanded equals quantity supplied, resulting in stable prices. It illustrates how prices adjust when they are above or below equilibrium, leading to surpluses or shortages. The video also discusses the assumptions of a competitive market where no single firm can influence prices, and concludes with a preview of shifts in demand and supply curves.

What is the definition of market equilibrium?

• When prices are constantly changing

• When quantity demanded equals quantity supplied at a given price

• When demand exceeds supply at a given price

• When supply exceeds demand at a given price

At what price do both quantity demanded and quantity supplied equal in the given example?

• $5

• $3

• $6

• $2

What happens to prices when they are below market equilibrium?

• Prices decrease further

• Prices are unaffected

• Prices remain stable

• Prices increase due to shortages

What is the result of a price set below market equilibrium?

• Prices become unpredictable

• A surplus occurs

• Market equilibrium is maintained

• A shortage occurs

How do sellers react to a shortage in the market?

• They increase prices

• They lower prices

• They stop selling

• They maintain current prices

What happens to prices when they are above market equilibrium?

• Prices are unaffected

• Prices decrease due to surpluses

• Prices increase further

• Prices remain stable

What is the result of a price set above market equilibrium?

• Prices become unpredictable

• Market equilibrium is maintained

• A shortage occurs

• A surplus occurs

How do sellers react to a surplus in the market?

• They lower prices

• They increase prices

• They stop selling

• They maintain current prices

In a competitive market, who sets the price?

• A single powerful firm

• The government

• Individual buyers

• The market

What is the role of firms in a competitive market regarding price?

• They ignore market prices

• They set prices independently

• They are price takers

• They are price makers