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458149
The Determination of Equilibrium Market Prices
Description
A Levels Economics (Unit 1, 2 The Allocation of Resources in Competitive Markets) Mind Map on The Determination of Equilibrium Market Prices, created by beth2384 on 30/12/2013.
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economics
unit 1
2 the allocation of resources in competitive markets
economics
unit 1, 2 the allocation of resources in competitive markets
a levels
Mind Map by
beth2384
, updated more than 1 year ago
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Created by
beth2384
over 10 years ago
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Resource summary
The Determination of Equilibrium Market Prices
EQUILIBRIUM= the price at which demand is equal to supply and there is no tendency for change
DISEQUILIBRIUM= a situation within the market where supply does not equal demand.
EXCESS SUPPLY= when supply at a particular price is greater than demand; this should signal to producers to lower prices
EXCESS DEMAND= when demand is greater than supply at a given price
MARKET-CLEARING PRICE= the price at which all goods that are supplied will be demanded
Excess Supply and Excess Demand
The effect of a TAX
always affects SUPPLY
price rise to the consumer is P1P2
the tax is the vertical distance between the two supply curves so is greater than the price rise to the consumers
P2= Ptax
The effect of a SUBSIDY
always affects SUPPLY
price rise to the consumer is P1P2
the subsidy is the vertical distance between the two supply curves (P1P3)
P2= Psub
PRICE CEILINGS AND PRICE FLOORS
Maximum prices (price ceilings)
has to be set below equilibrium to have an effect
there will be excess demand as the price is low, this can be dealt with through queues, waiting lists etc but may result in a black market emerging
Minimum prices (price floors)
has to be set above equilibrium (free market price) to have an effect
e.g. minimum wage, designed to increase standards of living for low paid workers
can distort the signals within the market as they're imposed by the government and are not natural, leading to a misallocation of resources
Media attachments
equilibrium_point_wheer_demand_and_supply_meet.gif (image/gif)
excess_supply_and_demand.gif (image/gif)
effect_of_a_tax.gif (image/gif)
effect_of_a_subsidy.gif (image/gif)
maximum_price (image/png)
minimum_price (image/png)
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