Answer to Question #280935 in Microeconomics for Aman

Question

7. Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium. 8. Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the price in the market for pizza? 9. Describe the role of prices in market economies.

Answer 1

7. Equilibrium of a market is where prices of goods and services become stable as a result of the supply and demand being equal and balancing each other.

8. When the price of beer rises the supply for pizza will increase, demand for pizza will decrease, quantity supplied will increase, quantity demanded will decrease and the price in the market for the pizza will increase

9. Prices help in determining when what and whom to produce thereby playing the allocative function

Price help in determining where to produce, and for whom to produce thereby playing the distributive function

Prices help in making the demand and supply to be equal hence the equilibrium function

Prices help in indicating situations of demand and supply hence the indicating function