| how are equilibrium prices determined? | by combining supply and demand curves |
| what is equilibrium | the amount willingly supplied and the amount willingly demanded are equal |
| whats consumer surplus | the difference between what a consumer is willing to pay and what they paid for a product |
| whats the producer surplus | is the difference between the market price and the lowest price a producer is willing to accept to produce a good |
| why is supply inelastic | they cant react fast enough |
| whats rationing function | shortage of supply means a higher price |
| whats the signalling function | price tells consumers and firms what to do. prices rise and fall to reflect scarcities and surpluses |
| incentive function | customers send info to producers about changing needs and wants. |
| Market clearing price | when the price has covered the costs. The price is perfectly equal to the quantity. |
| Excess supply | occurs when the quantity supplied of a product or service exceeds the quantity demanded at a given price level. |
| reason for change in equilibrium price | either a shift of the demand curve or a shift of the supply curve. |
| reasons for change in demand | Change in taste, income or the prices of other products then the demand curve will shift to the right. Then excess demand which will cause an increase in the equilibrium price. |
| joint demand | goods that tend to be demanded together (cars and fuel) |
| joint supply | when the production of one of the goods leads to the production of the other (chickens and eggs |
| composite demand | when a good is demanded for more than one distinct use. Milk for cheese, yoghurts, cream |
| derived demand | when a particular good or factors of production is necessary for the production of another good or service (fabric for clothes) |
