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Market Equilibrium


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Equilibrium
Quantity Demanded = Quantity Supplied
Surplus
Excess supply, price falls
Shortage
Excess demand, price rises
Signalling function
Function that tells producers to reallocate resources and produce less
Incentive function
Function that tells producers to reallocate resources and produce more
Consumer surplus
Consumers are happy because of lower price
Producer surplus
Producers are happy because of higher price
Community surplus
Consumer surplus + Producer surplus
Allocative efficiency
Community surplus is maximized
Revenue
Price x Quantity. Measure the total amount earned
Profit
The revenue of a product - The costs to make the product
Level 4