Question 2 a. What is market equilibrium? Does the market always reach equilibrium? Hint: Discuss and...

Question 2

a. What is market equilibrium? Does the market always reach equilibrium? Hint: Discuss and illustrate using demand and supply. See how to interpret graphs and the concept of market equilibrium on pages(54-55)

b. If there is surplus of houses in the market, then the price of houses will rise. True or false. Explain with the use of graph(s).

Expert Solution

Answer : 2) a) Market equilibrium : Market equilibrium is a situation of market where market demand is equal to market supply. In the following picture's diagram, point E is the equilibrium point because at point E the market demand curve intersects the market supply curve. This means that at point E the market demand is equal to market supply in the following picture's diagram. So, at point E the market is in equilibrium situation.

Yes, the market always reach at equilibrium. Because if price is higher than the equilibrium price level then the market faces a situation of surplus. In the following diagram P is the equilibrium price. Now if price rise and become P1 then the market face a situation of excess supply or surplus. Due to excess market supply the price level fall continuously until it reaches to equilibrium price P. Similarly, if the price level is less than the equilibrium price level then the market faces a situation of shortage. In the following picture's diagram if price is P2 then the market faces a situation of excess demand or shortage. Due excess demand the price level rise continuously until it reaches to equilibrium price P. Thus, the market always reach at equilibrium.

b) The answer is False.

When the market faces a situation of surplus then this means that the market has excess supply. Due to excess market supply the price level fall continuously until it reaches to equilibrium price level. In the following picture's diagram, E is the equilibrium point where P is the equilibrium price level. Now if the price is P1 then the market faces excess supply or surplus situation. As a result, the price level continuously fall until it reaches to equilibrium price level P. Therefore, the given statement is false.

Rahul Sunny answered 1 year ago

Describe the process by which the market for capital and the market for land reach equilibrium....

Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource.

A competitive market equilibrium is a stable equilibrium. What does that mean and what forces create...

A competitive market equilibrium is a stable equilibrium. What does that mean and what forces create this stability?

1) How does temperature affect enzyme function? Hint: discuss two separate processes. 2) What is an...

1) How does temperature affect enzyme function? Hint: discuss two separate processes. 2) What is an active site on an enzyme? What is a substrate? 3) What is the metastable state, and what does it have to do with activation energy? 4) What is Vmax, and how does it relate to the concept of saturation? 5) What is allosteric regulation of an enzyme?

1. As we’ve learned, a third market – the Labor Market – typically does not reach...

1. As we’ve learned, a third market – the Labor Market – typically does not reach an equilibrium where supply of labor equals demand for labor. What do we call the “normal” unemployment rate that persists even when wages have [incompletely] adjusted? 2. Say that businesses in the economy collectively think that the markets in which they sell their goods will soon experience increasing demand. In the loanable funds market, (a) which curve(s) do you expect to be affected, and...

QUESTION 3 (20 Marks) With the aid of a diagram, discuss market equilibrium for a public...

QUESTION 3 With the aid of a diagram, discuss market equilibrium for a public good in a hypothetical economy with two individuals who consume that public good assuming those individuals reveal their preference for that public good. QUESTION 4 Discuss Nozick’s three “principles of justice” for a just distribution of income. In your discussion, include other Pareto criteria for policies aimed at redistributing income from rich to poor. QUESTION 5 “The most common social choice rule is the “ordinary” majority...

Why does the economy always go against equilibrium in the Solow model?

What is consumer surplus? How does it relate to market equilibrium? What is the producer surplus?...

What is consumer surplus? How does it relate to market equilibrium? What is the producer surplus? How does it relate to market equilibrium? What is a deadweight loss (DWL)? How does a tax increase affect both the buyer and seller? How is it related to DWL?

Question 3. Consider the market for labor. Explain what happens to the equilibrium wage and the...

Question 3. Consider the market for labor. Explain what happens to the equilibrium wage and the equilibrium labor employed in each of the following events. a. Firms decrease the use of machines that labor work with. b. Population decreases. c. Demand for the firm’s product decreases. d. Price of the firm’s product increases.

Question 1 How does consumer moral hazard affect market equilibrium? It shifts the demand curve to...

Question 1 How does consumer moral hazard affect market equilibrium? It shifts the demand curve to the right, thereby increasing both the quantity of health care used and the price of health care. It shifts the demand curve to the right, thereby increasing the quantity of health care used, but its affect on the price of health care is ambiguous. It shifts the demand curve to the right, thereby increasing the quantity of health care used and decreasing the price...

1. When does a surplus occur in a market system? How is equilibrium restored? 2. When...

1. When does a surplus occur in a market system? How is equilibrium restored? 2. When does a shortage occur in a market system? How is equilibrium restored?

Question