Price determination
Cambridge IGCSE Economics (0455) · Unit 2: The allocation of resources · 9 flashcards
Price determination is topic 2.5 in the Cambridge IGCSE Economics (0455) syllabus , positioned in Unit 2 — The allocation of resources , alongside Microeconomics and macroeconomics, The role of markets and Demand. In one line: Equilibrium is the state where market supply and demand balance each other, and as a result prices become stable. At this point, there is no pressure for prices to rise or fall.
This topic is examined in Paper 1 (multiple-choice) and Paper 2 (structured questions, including data-response items).
The deck below contains 9 flashcards — 6 definitions, 1 key concept and 2 application cards — covering the precise wording mark schemes reward. Use the 6 definition cards to lock down command-word answers (define, state), then move on to the concept and application cards to handle explain, describe and compare questions.
'equilibrium' in the context of market price determination
Equilibrium is the state where market supply and demand balance each other, and as a result prices become stable. At this point, there is no pressure for prices to rise or fall.
Questions this Price determination deck will help you answer
- › Explain the difference between 'equilibrium price' and 'equilibrium quantity'.
- › Illustrate, with an example, how a shift in the demand curve affects the equilibrium price and quantity.
- › Illustrate, with an example, how a shift in the supply curve affects the equilibrium price and quantity.
Define 'equilibrium' in the context of market price determination.
Equilibrium is the state where market supply and demand balance each other, and as a result prices become stable. At this point, there is no pressure for prices to rise or fall.
Explain the difference between 'equilibrium price' and 'equilibrium quantity'.
Equilibrium price is the price at which the quantity demanded equals the quantity supplied. Equilibrium quantity is the amount of a good or service bought and sold at the equilibrium price.
What does 'market clearing' mean in economics, and how does it relate to equilibrium?
Market clearing occurs when the market reaches equilibrium, meaning all goods supplied are purchased by consumers. There is no surplus or shortage, leading to an efficient allocation of resources.
Describe the condition that leads to a 'surplus' in the market.
A surplus occurs when the quantity supplied is greater than the quantity demanded. This usually happens when the price is above the equilibrium price, leading to excess inventory.
How does a 'shortage' arise in a market, and what is its effect on price?
A shortage arises when the quantity demanded exceeds the quantity supplied. This happens when the price is below the equilibrium price, putting upward pressure on prices as consumers compete for limited goods.
Explain 'excess supply' and its impact on market price.
Excess supply, also known as a surplus, is when the quantity supplied exceeds the quantity demanded, often due to a price being set too high. This forces producers to lower prices to sell their goods, moving the market towards equilibrium.
What is 'excess demand,' and how does it affect the market?
Excess demand, also known as a shortage, is when the quantity demanded exceeds the quantity supplied, typically because the price is too low. This situation puts upward pressure on prices as consumers compete for the limited available goods.
Illustrate, with an example, how a shift in the demand curve affects the equilibrium price and quantity.
If demand for coffee increases (curve shifts right), the equilibrium price and quantity of coffee will both increase. Consumers are willing to pay more and buy more coffee at each price point.
Illustrate, with an example, how a shift in the supply curve affects the equilibrium price and quantity.
If supply of gasoline increases (curve shifts right), the equilibrium price will decrease, and the equilibrium quantity will increase. This will lead to more gasoline being sold at a lower price
Key Questions: Price determination
Define 'equilibrium' in the context of market price determination.
Equilibrium is the state where market supply and demand balance each other, and as a result prices become stable. At this point, there is no pressure for prices to rise or fall.
What does 'market clearing' mean in economics, and how does it relate to equilibrium?
Market clearing occurs when the market reaches equilibrium, meaning all goods supplied are purchased by consumers. There is no surplus or shortage, leading to an efficient allocation of resources.
Describe the condition that leads to a 'surplus' in the market.
A surplus occurs when the quantity supplied is greater than the quantity demanded. This usually happens when the price is above the equilibrium price, leading to excess inventory.
How does a 'shortage' arise in a market, and what is its effect on price?
A shortage arises when the quantity demanded exceeds the quantity supplied. This happens when the price is below the equilibrium price, putting upward pressure on prices as consumers compete for limited goods.
Explain 'excess supply' and its impact on market price.
Excess supply, also known as a surplus, is when the quantity supplied exceeds the quantity demanded, often due to a price being set too high. This forces producers to lower prices to sell their goods, moving the market towards equilibrium.
More topics in Unit 2 — The allocation of resources
Price determination sits alongside these Economics decks in the same syllabus unit. Each uses the same spaced-repetition system, so progress in one informs the next.
9 flashcards
8 flashcards
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9 flashcards
9 flashcards
9 flashcards
10 flashcards
Cambridge syllabus keywords to use in your answers
These are the official Cambridge 0455 terms tagged to this section. Mark schemes credit responses that use the exact term — weave them into your answers verbatim rather than paraphrasing.
Key terms covered in this Price determination deck
Every term below is defined in the flashcards above. Use the list as a quick recall test before your exam — if you can't define one of these in your own words, flip back to that card.
How to study this Price determination deck
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