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<title>DP Economics: Unit 2.3: Competitive market equilibrium</title>
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style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35118/unit-2111-market-power-theory-of-production-and-costs-hl.html" title="Unit 2.11(1) Market power - Theory of production and costs (HL)">Unit 2.11(1) Market power - Theory of production and costs (HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35125/unit-2112-market-power-perfect-competitionhl.html" title="Unit 2.11(2) Market power - Perfect competition(HL)">Unit 2.11(2) Market power - Perfect competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35147/unit-2113-market-power-monopolyhl.html" title="Unit 2.11(3) Market power - Monopoly(HL)">Unit 2.11(3) Market power - Monopoly(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35151/unit-2114-market-power-monopolistic-competitionhl.html" title="Unit 2.11(4) Market power - Monopolistic competition(HL)">Unit 2.11(4) Market power - Monopolistic competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35153/unit-2115-market-power-oligopolyhl.html" title="Unit 2.11(5) Market power - Oligopoly(HL)">Unit 2.11(5) Market power - Oligopoly(HL)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41603/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43378/opportunity-cost-and-production-possibility-curves.html" title="Opportunity cost and production possibility curves">Opportunity cost and production possibility curves</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42559/demand-theory.html" title="Demand theory">Demand theory</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41886/the-price-mechanism.html" title="The price mechanism">The price mechanism</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43188/market-demand-and-supply.html" title="Market demand and supply">Market demand and supply</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41705/demerit-goods.html" title="Demerit goods">Demerit goods</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42275/market-failure-and-climate-change.html" title="Market failure and climate change">Market failure and climate change</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42925/market-power.html" title="Market power">Market power</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42099/applying-game-theory.html" title="Applying game theory">Applying game theory</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../34407/chapter-3-macroeconomics.html" title="Chapter 3: Macroeconomics">Chapter 3: Macroeconomics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34355/unit-311-measuring-the-level-of-economic-activity.html" title="Unit 3.1(1): Measuring the level of economic activity">Unit 3.1(1): Measuring the level of economic activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34432/unit-312-measuring-economic-development.html" title="Unit 3.1(2): Measuring Economic Development">Unit 3.1(2): Measuring Economic Development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34485/unit-321-variations-in-economic-activity-aggregate-demand-ad-.html" title="Unit 3.2(1): Variations in economic activity - aggregate demand (AD) ">Unit 3.2(1): Variations in economic activity - aggregate demand (AD) </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34487/unit-322-variations-in-economic-activity-aggregate-supplyas.html" title="Unit 3.2(2): Variations in economic activity - aggregate supply(AS)">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34758/unit-331-macroeconomic-objectives-economic-growth.html" title="Unit 3.3(1) Macroeconomic objectives: economic growth">Unit 3.3(1) Macroeconomic objectives: economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34771/unit-332-macroeconomic-objectives-unemployment-.html" title="Unit 3.3(2) Macroeconomic objectives: unemployment ">Unit 3.3(2) Macroeconomic objectives: unemployment </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34778/unit-333-macroeconomic-objectives-inflation-and-deflation--1.html" title="Unit 3.3(3) Macroeconomic objectives: inflation and deflation ">Unit 3.3(3) Macroeconomic objectives: inflation and deflation </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34925/unit-341-economics-of-inequality-and-poverty-1.html" title="Unit 3.4(1) Economics of inequality and poverty">Unit 3.4(1) Economics of inequality and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34946/unit-342-policies-to-improve-equality-equity-and-poverty.html" title="Unit 3.4(2) Policies to improve equality, equity and poverty">Unit 3.4(2) Policies to improve equality, equity and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34993/unit-35-government-management-of-the-economy-monetary-policy-1.html" title="Unit 3.5 Government management of the economy – monetary policy">Unit 3.5 Government management of the economy – monetary policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34962/unit-36-government-management-of-the-economy-fiscal-policy-1.html" title="Unit 3.6 Government management of the economy – fiscal policy">Unit 3.6 Government management of the economy – fiscal policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35017/unit-371-market-based-supply-side-policies--1.html" title="Unit 3.7(1) Market based supply-side policies ">Unit 3.7(1) Market based supply-side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35018/unit-372-interventionist-supply-side-policies-.html" title="Unit 3.7(2) Interventionist supply-side policies ">Unit 3.7(2) Interventionist supply-side policies </a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45803/economics-real-world-examples-and-extension-material--1.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42639/measuring-economic-well-being-1.html" title="Measuring economic well-being">Measuring economic well-being</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43044/inflation.html" title="Inflation">Inflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42350/inequality.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41639/inequity-1.html" title="Inequity">Inequity</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../35414/chapter-4-the-global-economy.html" title="Chapter 4: The Global Economy">Chapter 4: The Global Economy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35346/unit-41-benefits-of-international-trade-1.html" title="Unit 4.1 Benefits of international trade">Unit 4.1 Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35348/unit-4243-trade-protectionism-1.html" title="Unit 4.2/4.3 Trade protectionism">Unit 4.2/4.3 Trade protectionism</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35407/unit-44-economic-integration-.html" title="Unit 4.4 Economic integration ">Unit 4.4 Economic integration </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35409/unit-45-exchange-rates-1.html" title="Unit 4.5 Exchange rates">Unit 4.5 Exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35413/unit-46-balance-of-payments--1.html" title="Unit 4.6 Balance of payments ">Unit 4.6 Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35675/unit-47-sustainable-development.html" title="Unit 4.7 Sustainable development">Unit 4.7 Sustainable development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35685/unit-48-measuring-development--1.html" title="Unit 4.8 Measuring development ">Unit 4.8 Measuring development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35687/unit-49-barriers-to-economic-development-1.html" title="Unit 4.9 Barriers to economic development">Unit 4.9 Barriers to economic development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35702/unit-410-economic-growth-and-economic-development-strategies.html" title="Unit 4.10: Economic growth and economic development strategies">Unit 4.10: Economic growth and economic development strategies</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45804/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41927/foreign-currency-1.html" title="Foreign currency">Foreign currency</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43532/exchange-rates-1.html" title="Exchange rates">Exchange rates</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43804/balance-of-payments.html" title="Balance of payments">Balance of payments</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41796/economic-development-1.html" title="Economic development">Economic development</a></li></ul></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../20132/units-1-2-microeconomics.html" title="Units 1-2: Microeconomics">Units 1-2: Microeconomics</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 1: Introduction to economics">Unit 1: Introduction to economics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20091/introductory-activity-1.html" title="Introductory activity">Introductory activity</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20093/unit-11-scarcity-choice-and-opportunity-cost.html" title="Unit 1.1: Scarcity, choice and opportunity cost">Unit 1.1: Scarcity, choice and opportunity cost</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21647/factors-of-production-1.html" title="Factors of production">Factors of production</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20114/economic-systems.html" title="Economic systems">Economic systems</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20134/public-and-private-sectors-1.html" title="Public and private sectors">Public and private sectors</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28055/unit-12-economics-as-a-social-science-1.html" title="Unit 1.2: Economics as a social science">Unit 1.2: Economics as a social science</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29921/circular-flow-of-national-income.html" title="Circular flow of national income">Circular flow of national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29829/unit-1-review-terms-1.html" title="Unit 1: Review terms">Unit 1: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41600/introduction-to-economics-crossword-1.html" title="Introduction to economics crossword">Introduction to economics crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../4331/unit-1-multiple-choice-quiz.html" title="Unit 1: Multiple choice quiz">Unit 1: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20177/unit-21-23-competitive-markets-demand-and-supply-1.html" title="Unit 2.1-2.3: Competitive markets - demand and supply">Unit 2.1-2.3: Competitive markets - demand and supply</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28517/unit-21-demand-1.html" title="Unit 2.1: Demand">Unit 2.1: Demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22349/determinants-of-demand-1.html" title="Determinants of demand">Determinants of demand</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29949/unit-22-supply-.html" title="Unit 2.2: Supply ">Unit 2.2: Supply </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20184/changes-to-supply-and-demand-.html" title="Changes to supply and demand ">Changes to supply and demand </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21992/practise-exercises-1.html" title="Practise exercises">Practise exercises</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../26112/gold-exchange-game-demand-and-supply-1.html" title="Gold exchange game: Demand and supply">Gold exchange game: Demand and supply</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20194/unit-23-competitive-market-equilibrium-1.html" title="Unit 2.3: Competitive market equilibrium">Unit 2.3: Competitive market equilibrium</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20144/producer-and-consumer-surplus-1.html" title="Producer and consumer surplus">Producer and consumer surplus</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22351/veblen-goods-and-super-luxury-goods-1.html" title="Veblen goods and super luxury goods">Veblen goods and super luxury goods</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../25677/are-cryptocurrencies-the-new-tulipmania.html" title="Are Cryptocurrencies the new Tulipmania?">Are Cryptocurrencies the new Tulipmania?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20472/unit-21-23-multiple-choice-quiz.html" title="Unit 2.1-2.3: Multiple choice quiz">Unit 2.1-2.3: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20113/unit-24-consumer-and-producer-behaviour-hl-only-1.html" title="Unit 2.4: Consumer and producer behaviour (HL only)">Unit 2.4: Consumer and producer behaviour (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../36073/behavioural-economics-consumer-biases-nudge-theory-hl-only-1.html" title="Behavioural economics: Consumer biases / nudge theory (HL only)">Behavioural economics: Consumer biases / nudge theory (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20378/business-objectives-hl-only.html" title="Business objectives (HL only)">Business objectives (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28741/unit-21-24-review-terms--1.html" title="Unit 2.1-2.4: Review terms ">Unit 2.1-2.4: Review terms </a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20195/unit-25-26-elasticity-1.html" title="Unit 2.5-2.6: Elasticity">Unit 2.5-2.6: Elasticity</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28713/unit-25-price-elasticity-of-demand-1.html" title="Unit 2.5: Price elasticity of demand">Unit 2.5: Price elasticity of demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21545/determinants-of-price-elasticity-.html" title="Determinants of price elasticity ">Determinants of price elasticity </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21532/ped-elasticity-and-sales-revenue.html" title="PED elasticity and sales revenue?">PED elasticity and sales revenue?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21259/unit-25-income-elasticity-of-demand-yed.html" title="Unit 2.5: Income elasticity of demand (YED)">Unit 2.5: Income elasticity of demand (YED)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21200/unit-26-price-elasticity-of-supply.html" title="Unit 2.6: Price elasticity of supply">Unit 2.6: Price elasticity of supply</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20207/perfectly-elastic-inelastic-supply-curves.html" title="Perfectly elastic / inelastic supply curves">Perfectly elastic / inelastic supply curves</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20230/a-mathematical-note-about-elasticity-.html" title="A mathematical note about elasticity ">A mathematical note about elasticity </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39037/demand-and-supply-crossword.html" title="Demand and supply crossword">Demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29021/unit-25-26-review-terms-1.html" title="Unit 2.5-2.6: Review terms">Unit 2.5-2.6: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20474/unit-25-26-multiple-choice-quiz--1.html" title="Unit 2.5-2.6: Multiple choice quiz ">Unit 2.5-2.6: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44474/unit-21-25-competitive-markets-quiz-1.html" title="Unit 2.1- 2.5: Competitive markets quiz">Unit 2.1- 2.5: Competitive markets quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20243/unit-27-the-role-of-government-in-microeconomics--1.html" title="Unit 2.7: The role of government in microeconomics ">Unit 2.7: The role of government in microeconomics </a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26590/indirect-taxation.html" title="Indirect taxation">Indirect taxation</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20246/ped-and-the-burden-of-tax-hl-only-.html" title="PED and the burden of tax (HL only) ">PED and the burden of tax (HL only) </a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20277/government-subsidies--1.html" title="Government subsidies ">Government subsidies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29117/unit-27-indirect-tax-and-subsidy-review-terms-1.html" title="Unit 2.7: Indirect tax and subsidy review terms">Unit 2.7: Indirect tax and subsidy review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20287/price-controls-maximum-price--1.html" title="Price controls − maximum price ">Price controls − maximum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20288/minimum-price-.html" title="Minimum price ">Minimum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21540/minimum-wage-.html" title="Minimum wage ">Minimum wage </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38849/labour-market-crossword-1.html" title="Labour market crossword">Labour market crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29260/unit-27-price-controls-review-terms-1.html" title="Unit 2.7: Price controls review terms">Unit 2.7: Price controls review terms</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20303/unit-28-210-market-failure--1.html" title="Unit 2.8-2.10: Market failure ">Unit 2.8-2.10: Market failure </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21543/unit-28-merit-goods--1.html" title="Unit 2.8: Merit goods ">Unit 2.8: Merit goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23123/unit-28-demerit-goods-negative-externalities-1.html" title="Unit 2.8: Demerit goods / negative externalities">Unit 2.8: Demerit goods / negative externalities</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38850/market-failure-crossword-1.html" title="Market failure crossword">Market failure crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29262/unit-29-economics-of-the-environment-and-public-goods--1.html" title="Unit 2.9: Economics of the environment and public goods ">Unit 2.9: Economics of the environment and public goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20332/unit-210-asymmetric-information-hl-only-1.html" title="Unit 2.10: Asymmetric information (HL only)">Unit 2.10: Asymmetric information (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29828/unit-28-210-market-failure-review-sheet.html" title="Unit 2.8-2.10: Market failure review sheet">Unit 2.8-2.10: Market failure review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29827/unit-28-210-market-failure-review-terms.html" title="Unit 2.8-2.10: Market failure review terms">Unit 2.8-2.10: Market failure review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20479/unit-27-210-multiple-choice-quiz--1.html" title="Unit 2.7-2.10: Multiple choice quiz ">Unit 2.7-2.10: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44501/unit-27-210-government-failure-revision-quiz-1.html" title="Unit 2.7-2.10 Government failure revision quiz">Unit 2.7-2.10 Government failure revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20330/unit-211-market-power-hl-only-1.html" title="Unit 2.11: Market power (HL only)">Unit 2.11: Market power (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29835/assessment-map.html" title="Assessment map">Assessment map</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21528/production-hl-only.html" title="Production (HL only)">Production (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29978/revenue-theory-hl-only.html" title="Revenue theory (HL only)">Revenue theory (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20357/costs-of-production-hl-only.html" title="Costs of production (HL only)">Costs of production (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21286/economies-and-diseconomies-of-scale-hl-only.html" title="Economies and diseconomies of scale (HL only)">Economies and diseconomies of scale (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22494/long-run-average-cost-curves-hl-only.html" title="Long run average cost curves (HL only)">Long run average cost curves (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../29838/breakeven-hl-only.html" title="Breakeven (HL only)">Breakeven (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20340/economic-profit-hl-only.html" title="Economic profit (HL only)">Economic profit (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39082/market-power-crossword.html" title="Market power crossword">Market power crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22495/revision-exercise-on-cost-and-revenue-hl-only.html" title="Revision exercise on cost and revenue (HL only)">Revision exercise on cost and revenue (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29845/unit-211-costs-revenue-and-profit-review-sheet-hl-only.html" title="Unit 2.11: Costs, revenue and profit review sheet (HL only)">Unit 2.11: Costs, revenue and profit review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44484/unit-211-multiple-choice-quiz-sl-units-1.html" title="Unit 2.11: Multiple choice quiz (SL units)">Unit 2.11: Multiple choice quiz (SL units)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29846/market-structures-hl-only-1.html" title="Market structures (HL only)">Market structures (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29981/perfect-competition-hl-only-1.html" title="Perfect competition (HL only)">Perfect competition (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24486/profit-in-perfect-competition-hl-only-1.html" title="Profit in perfect competition (HL only)">Profit in perfect competition (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21302/efficiency-in-perfect-competition-hl-only.html" title="Efficiency in perfect competition (HL only)">Efficiency in perfect competition (HL only)</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20430/monopoly-hl-only-1.html" title="Monopoly (HL only)">Monopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24529/profit-and-revenue-maximisation-in-monopoly-hl-only-1.html" title="Profit and revenue maximisation in monopoly (HL only)">Profit and revenue maximisation in monopoly (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21306/a-comparison-of-monopoly-and-perfect-competition-hl-only-1.html" title="A comparison of monopoly and perfect competition? (HL only)">A comparison of monopoly and perfect competition? (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20435/monopolistic-competition-hl-only-1.html" title="Monopolistic competition (HL only)">Monopolistic competition (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20436/oligopoly-hl-only-1.html" title="Oligopoly (HL only)">Oligopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22310/game-theory-hl-only-1.html" title="Game theory (HL only)">Game theory (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29918/unit-211-market-structures-review-sheet-hl-only-1.html" title="Unit 2.11: Market structures review sheet (HL only)">Unit 2.11: Market structures review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32337/unit-211-diagram-revision-.html" title="Unit 2.11: Diagram revision ">Unit 2.11: Diagram revision </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20480/unit-211-multiple-choice-quiz-hl-only-1.html" title="Unit 2.11: Multiple choice quiz (HL only)">Unit 2.11: Multiple choice quiz (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32425/unit-212-the-markets-inability-to-achieve-equity-hl-only-1.html" title="Unit 2.12: The market’s inability to achieve equity (HL only)">Unit 2.12: The market’s inability to achieve equity (HL only)</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21842/unit-3-macroeconomics-.html" title="Unit 3: Macroeconomics ">Unit 3: Macroeconomics </a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../3942/unit-31-measuring-economic-activity-and-illustrating-its-variati-1.html" title="Unit 3.1: Measuring economic activity and illustrating its variations">Unit 3.1: Measuring economic activity and illustrating its variations</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20558/calculating-national-income-1.html" title="Calculating national income">Calculating national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21297/gdp-gni-as-a-measure-of-living-standards.html" title="GDP / GNI as a measure of living standards">GDP / GNI as a measure of living standards</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20567/national-income-statistics-1.html" title="National income statistics">National income statistics</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21580/the-business-cycle-1.html" title="The business cycle">The business cycle</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29931/unit-31-economic-activity-review-sheet-1.html" title="Unit 3.1: Economic activity review sheet">Unit 3.1: Economic activity review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20592/unit-32-variations-in-economic-activityaggregate-demand-and-aggr-1.html" title="Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply">Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29933/aggregate-demand-and-supply.html" title="Aggregate demand and supply">Aggregate demand and supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21582/components-of-aggregate-demand-1.html" title="Components of aggregate demand">Components of aggregate demand</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20634/equilibrium-in-macroeconomics-neo-classical-perspective-1.html" title="Equilibrium in macroeconomics (neo-classical perspective)">Equilibrium in macroeconomics (neo-classical perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20439/equilibrium-in-macroeconomics-keynesian-perspective-1.html" title="Equilibrium in macroeconomics (keynesian perspective)">Equilibrium in macroeconomics (keynesian perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21349/john-maynard-keynes-1.html" title="John Maynard Keynes">John Maynard Keynes</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20650/keynesian-v-free-market-debate--1.html" title="Keynesian v free market debate ">Keynesian v free market debate </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21342/changes-in-the-long-run-aggregate-supply-1.html" title="Changes in the long run aggregate supply">Changes in the long run aggregate supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30055/unit-32-aggregate-demand-and-supply-review-sheet-1.html" title="Unit 3.2: Aggregate demand and supply review sheet">Unit 3.2: Aggregate demand and supply review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20610/unit-35-and-36-demand-management-fiscal-and-monetary-policy-1.html" title="Unit 3.5 and 3.6: Demand management - fiscal and monetary policy">Unit 3.5 and 3.6: Demand management - fiscal and monetary policy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30058/government-budget.html" title="Government budget">Government budget</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21585/fiscal-policy--1.html" title="Fiscal policy ">Fiscal policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21343/multiplier-hl-only.html" title="Multiplier (HL only)">Multiplier (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21795/monetary-policy--1.html" title="Monetary policy ">Monetary policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30071/independent-central-banks-1.html" title="Independent central banks">Independent central banks</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30083/unit-35-and-36-review-sheet.html" title="Unit 3.5 and 3.6 review sheet">Unit 3.5 and 3.6 review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20615/unit-37-supply-side-policies-1.html" title="Unit 3.7: Supply side policies">Unit 3.7: Supply side policies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20651/the-role-of-supply-side-policies-1.html" title="The role of supply side policies">The role of supply side policies</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20622/market-based-and-interventionist-supply-side-policies--1.html" title="Market based and interventionist supply side policies ">Market based and interventionist supply side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39129/aggregate-demand-and-supply-crossword-1.html" title="Aggregate demand and supply crossword">Aggregate demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30086/unit-37-review-sheet-1.html" title="Unit 3.7: Review sheet">Unit 3.7: Review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20755/unit-31-32-and-35-37-multiple-choice-quiz--1.html" title="Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz ">Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz </a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../44522/unit-31-32-and-35-37-revision-quiz-1.html" title="Unit 3.1-3.2 and 3.5-3.7: Revision quiz">Unit 3.1-3.2 and 3.5-3.7: Revision quiz</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20686/unit-33-macroeconomic-objectives.html" title="Unit 3.3: Macroeconomic objectives">Unit 3.3: Macroeconomic objectives</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30118/unemployment.html" title="Unemployment">Unemployment</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21351/types-of-unemployment.html" title="Types of unemployment?">Types of unemployment?</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21593/equilibrium-unemployment-.html" title="Equilibrium unemployment ">Equilibrium unemployment </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21594/disequilibrium-unemployment-1.html" title="Disequilibrium unemployment">Disequilibrium unemployment</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30458/unemployment-review-sheet-1.html" title="Unemployment review sheet">Unemployment review sheet</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20713/inflation--1.html" title="Inflation ">Inflation </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20712/measuring-inflation-hl-only-1.html" title="Measuring inflation (HL only)">Measuring inflation (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20685/costs-of-inflation-and-deflation-1.html" title="Costs of inflation and deflation">Costs of inflation and deflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30465/inflation-review-sheet.html" title="Inflation review sheet">Inflation review sheet</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20716/unemployment-v-inflation-trade-off-hl-only-1.html" title="Unemployment v inflation trade off (HL only)">Unemployment v inflation trade off (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39133/macroeconomic-objectives-crossword-1.html" title="Macroeconomic objectives crossword">Macroeconomic objectives crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44511/unit-33-macroeconomic-indicators-revision-quiz-1.html" title="Unit 3.3: Macroeconomic indicators revision quiz">Unit 3.3: Macroeconomic indicators revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20741/unit-34-economics-of-inequality-and-poverty-1.html" title="Unit 3.4: Economics of inequality and poverty">Unit 3.4: Economics of inequality and poverty</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32398/inequality-1.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21356/the-role-of-spending-and-taxation-on-inequality--1.html" title="The role of spending and taxation on inequality ">The role of spending and taxation on inequality </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21313/consequences-of-economic-growth-1.html" title="Consequences of economic growth">Consequences of economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30257/economic-growth-and-inequality-review-sheet-1.html" title="Economic growth and inequality review sheet">Economic growth and inequality review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20756/unit-33-34-multiple-choice-.html" title="Unit 3.3-3.4: Multiple choice ">Unit 3.3-3.4: Multiple choice </a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21844/unit-4-global-economy.html" title="Unit 4: Global economy">Unit 4: Global economy</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../21367/unit-41-benefits-of-international-trade.html" title="Unit 4.1: Benefits of international trade">Unit 4.1: Benefits of international trade</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30529/benefits-of-international-trade.html" title="Benefits of international trade">Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20823/absolute-and-comparative-advantage-hl-only-1.html" title="Absolute and comparative advantage (HL only)">Absolute and comparative advantage (HL only)</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20845/unit-42-43-trade-protection-1.html" title="Unit 4.2-4.3: Trade protection">Unit 4.2-4.3: Trade protection</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32419/barriers-to-trade-calculations-are-hl-only-1.html" title="Barriers to trade (calculations are HL only)">Barriers to trade (calculations are HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21610/case-study-on-tata-steel-1.html" title="Case study on Tata Steel">Case study on Tata Steel</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23455/the-defence-industry-1.html" title="The Defence industry">The Defence industry</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30610/unit-41-43-review-sheet-1.html" title="Unit 4.1-4.3: Review sheet">Unit 4.1-4.3: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20894/unit-44-economic-integration--1.html" title="Unit 4.4: Economic integration ">Unit 4.4: Economic integration </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30634/economic-integration-some-hl-tasks-1.html" title="Economic integration (some HL tasks)">Economic integration (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20840/world-trade-organisation-wto-1.html" title="World trade organisation (WTO)">World trade organisation (WTO)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30635/unit-44-review-sheet-1.html" title="Unit 4.4: Review sheet">Unit 4.4: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20853/unit-45-exchange-rates-1.html" title="Unit 4.5: Exchange rates">Unit 4.5: Exchange rates</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30611/floating-exchange-rates-1.html" title="Floating exchange rates">Floating exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../31824/fixed-managed-exchange-rate-systems-some-hl-tasks-1.html" title="Fixed / managed exchange rate systems (some HL tasks)">Fixed / managed exchange rate systems (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21624/the-market-for-foreign-exchange-1.html" title="The market for foreign exchange">The market for foreign exchange</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30614/unit-45-review-sheet-1.html" title="Unit 4.5: Review sheet">Unit 4.5: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20859/unit-46-balance-of-payments-1.html" title="Unit 4.6: Balance of payments">Unit 4.6: Balance of payments</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30624/balance-of-payments--1.html" title="Balance of payments ">Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21386/current-account-hl-only-1.html" title="Current account (HL only)">Current account (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20872/the-marshall-lerner-condition-j-curve-hl-only-1.html" title="The Marshall-Lerner condition / J curve (HL only)">The Marshall-Lerner condition / J curve (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20899/units-41-46-multiple-choice-quiz--1.html" title="Units 4.1-4.6: Multiple choice quiz ">Units 4.1-4.6: Multiple choice quiz </a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../42989/unit-41-46-multiple-choice-quiz-ii-1.html" title="Unit 4.1-4.6: Multiple choice quiz II">Unit 4.1-4.6: Multiple choice quiz II</a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../39438/unit-41-46-international-trade-crossword-1.html" title="Unit 4.1-4.6: International trade crossword">Unit 4.1-4.6: International trade crossword</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32423/unit-47-sustainable-development--1.html" title="Unit 4.7: Sustainable development ">Unit 4.7: Sustainable development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26092/water-scarcity-activity-1.html" title="Water scarcity activity">Water scarcity activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32426/sustainable-development.html" title="Sustainable development">Sustainable development</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20928/unit-48-measuring-development--1.html" title="Unit 4.8: Measuring development ">Unit 4.8: Measuring development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30686/measuring-development-1.html" title="Measuring development">Measuring development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21627/economic-development--1.html" title="Economic development ">Economic development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30679/unit-47-48-review-sheet.html" title="Unit 4.7-4.8: Review sheet">Unit 4.7-4.8: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 4.9: Barriers to development">Unit 4.9: Barriers to development</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30727/barriers-to-development-in-international-trade-1.html" title="Barriers to development in International trade">Barriers to development in International trade</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32430/unit-410-economic-growth-andor-economic-development-strategies-1.html" title="Unit 4.10: Economic growth and/or economic development strategies">Unit 4.10: Economic growth and/or economic development strategies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30687/the-role-of-domestic-factors-1.html" title="The role of domestic factors">The role of domestic factors</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30688/the-role-of-international-trade-and-development-1.html" title="The role of international trade and development">The role of international trade and development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30689/the-role-of-foreign-direct-investment-fdi-1.html" title="The role of foreign direct investment (FDI)">The role of foreign direct investment (FDI)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25240/the-role-of-foreign-aid--1.html" title="The role of foreign aid ">The role of foreign aid </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30819/multilateral-development-assistance-1.html" title="Multilateral development assistance">Multilateral development assistance</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21632/the-role-of-international-debt-1.html" title="The role of international debt">The role of international debt</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25242/the-balance-between-markets-and-intervention-1.html" title="The balance between markets and intervention">The balance between markets and intervention</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30926/unit-49-410-review-sheet.html" title="Unit 4.9 - 4.10: Review sheet">Unit 4.9 - 4.10: Review sheet</a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21380/assessment.html" title="Assessment">Assessment</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Internal assessment ">Internal assessment </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20608/how-to-write-your-ia-student-handout.html" title="How to write your IA? (student handout)">How to write your IA? (student handout)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21428/how-to-interpret-the-assessment-criteria-1.html" title="How to interpret the assessment criteria?">How to interpret the assessment criteria?</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Grading practise ">Grading practise </a></li><ul class="level-3 "><li class=" parent" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Sample 3a">Sample 3a</a></li><ul class="level-4 "><li class="" style="padding-left: 56px"><i class="expander fa fa-caret-right "></i><a class="" href="../32083/sample-3b-1.html" title="Sample 3b">Sample 3b</a></li></ul></ul></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32022/assessment-markbands-1.html" title="Assessment markbands">Assessment markbands</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../4332/exam-style-questions.html" title="Exam style questions">Exam style questions</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Paper 1 style examination questions">Paper 1 style examination questions</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../40100/unit-211-212-questions.html" title="Unit 2.11-2.12 questions">Unit 2.11-2.12 questions</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../45102/paper-1-guidance-on-essay-writing-1.html" title="Paper 1 guidance on essay writing">Paper 1 guidance on essay writing</a></li></ul></ul></nav> </div> </div> </div> </div><div style="margin-top: 20px;"><style type="text/css">
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<div id="main-column" class="span9"> <article id="unit-23-competitive-market-equilibrium" style="margin-top: 16px;">
<h1 class="section-title">Unit 2.3: Competitive market equilibrium</h1>
<ul class="breadcrumb"><li><a title="Home" href="../../../economics.html"><i class="fa fa-home"></i></a><span class="divider">/</span></li><li><span class="gray">Textbook</span><span class="divider">/</span></li><li><span class="gray">Chapter 2: Microeconomics</span><span class="divider">/</span></li><li><span class="active">Unit 2.3: Competitive market equilibrium</span></li></ul>
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<div class="intro-card"><div class="bg-cover" style="background-image: url("/media/ib/economics/images/textbook/introduction/equilibrium.jpg");"></div><img src="../../../ib/economics/images/textbook/introduction/equilibrium.jpg" style="display: none"><div class="content"><p>Equilibrium in markets occurs where demand equals supply and the market-clearing price and output are established. The equilibrium price is known as the market-clearing price because at that moment in time all the consumers who are willing and able to buy the product at the equilibrium price can purchase the good and all the producers who are willing and able to sell the product at the equilibrium price can sell it. Changes in the equilibrium price and quantity reflect changes in the allocation of resources in the economy.</p></div></div><div class="box"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h3><strong>What you should know by the end of this chapter:</strong></h3></div></div></div><div class="polaroid-right"><img height="213" src="../../../ib/economics/images/textbook/market-theory/market-for-mobile-phones(1).jpg" style="margin: 8px 0px;" width="294"><div class="caption">The competitive market for mobile phones</div></div><ul><li>Resource allocation through the price mechanism</li><li>Signalling function of price</li><li>Incentive function of price</li><li>How price rations goods and services in a market</li><li>Consumer Surplus</li><li>Producer surplus</li><li>Social/community surplus maximisation </li></ul></div><div class="greyBg"><h3>Revision material</h3><p><img alt="" src="../../../ib/economics/images/textbook/revision-material/logo.jpg" style="width: 200px; height: 95px; float: left;">The link to the attached pdf is revision material from <strong>Unit 2.3: Competitive market equilibrium. </strong>The revision material can be downloaded as a student handout.</p><p><a href="../../../media/ib/economics/images/textbook/market-theory/market-equilibrium/revision-notes.pdf.html" target="_blank" title="Revision"><img class="ico" src="../../../thinkib/icons/revision.png"> Revision notes</a></p></div><div class="blueBg"><h3>What is market equilibrium?</h3><p>Equilibrium in markets occurs where demand equals supply and the market-clearing price and output are established. The equilibrium price is known as the market-clearing price because at that moment in time all the consumers who are willing and able to buy the product at the equilibrium price can purchase it and all the producers who are willing and able to sell the product at the equilibrium price can sell it.</p><h4><strong>Disequilibrium<img alt="" height="280" src="../../../ib/economics/images/textbook/market-theory/picture-13.png" style="float: right;" width="456"></strong></h4><p>If the price of a good is not at the equilibrium level there is natural market pressure to push it to the equilibrium price. Diagram 2.9 illustrates the market for a music festival. The equilibrium price is $100 and the equilibrium quantity is 10,000 tickets. If the price is above the equilibrium at $150 there will be excess supply and there will be natural pressure for the price to fall to the equilibrium. At a price of $40 which is below the equilibrium, there is excess demand and the price rises to the equilibrium.</p><hr class="hidden"><h4>The rationing function of price</h4><p>The central economic problem of scarcity means there is always a limited supply of goods and services to be shared out amongst consumers. Price has a rationing function in this situation because it distributes goods so there are no shortages or surpluses. All the consumers in the market who are willing and able to buy a good at the market price can buy it and all the firms in the market who are willing and able to sell their goods at the market price can sell it. The example of festival tickets in diagram 2.9 illustrates the rationing function of price.</p><hr class="hidden"><hr class="hidden"></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4>Inquiry case example - Can markets ration the Covid19 vaccine?</h4></div></div></div><p>Producing e<img alt="" src="../../../ib/economics/images/textbook/market-theory/vaccine.jpg" style="float: left; width: 280px; height: 279px;">nough Covid19 vaccine to meet demand is going to be a challenge all over the world. It requires an unprecedented level of coordination between scientists, pharmaceutical companies and governments. Left to itself the market could find a solution. High demand and limited supply would drive up the price of a vaccine to a level where everyone willing and able to pay for the vaccine will get it. The vaccine could be rationed by the price mechanism. But this raises some important issues. The vaccine may well go to wealthy people in rich countries which could leave little available to poorer people in different countries and in economically less developed countries (ELDCs).</p><hr class="hidden"><p>For a vaccine to be successful it also needs to reach a certain level of consumption amongst the population and the market mechanism probably will not allow this to happen. On this evidence, the market will fulfil its rationing function in the distribution of a Covid19 vaccine, but the level of consumption is not going to maximise the welfare of a country’s population or indeed the world’s population.</p><p><a href="../../../media/ib/economics/images/textbook/market-theory/market-equilibrium/vaccine-question.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></p><p><strong>Questions</strong></p><p><strong>a. Define the term market equilibrium. [2] </strong></p><section class="tib-hiddenbox"><p>Equilibrium in markets occurs where demand equals supply and the market-clearing price and output are established. </p></section><p><strong>b. Using a diagram, explain the rationing function of price. [4]</strong></p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/equlibrium-vaccine.jpg" style="float: right; width: 400px; height: 255px;">The rationing function of price means that everyone who has effective demand for the good at the equilibrium price can buy the good and any firm that has effective supply can sell the good and there will be no shortages or surpluses. This is shown in the diagram where changes in excess demand and excess supply move price to the equilibrium. </p></section><p><strong>c. Explain the problem of trying to ration the Covid19 vaccine through the price mechanism. [4]</strong></p><section class="tib-hiddenbox"><p>If the market rations the vaccine it may set a price above the level consumers below a certain income can afford. This is because there may be high demand and limited supply in the early phase of the vaccine which would lead to a high price. If not enough people can afford the vaccine then they may get ill with Covid19 and the number of people who need to be vaccinated for the vaccine to be effective will not be achieved.</p></section><h5><strong>Investigation</strong></h5><p><strong>Discuss with your class what governments around the world have tried to do to meet the supply challenges of the Covid19 vaccine. </strong></p></div><div class="blueBg"><h3><strong>Changes in equilibrium</strong></h3><p>The equilibrium price and quantity in a market will change if there is a change in either demand or supply.</p><h4><strong>Change in demand<img alt="" height="268" src="../../../ib/economics/images/textbook/market-theory/picture-14.png" style="float: right;" width="440"></strong></h4><p>A change in a non-price demand factor that shifts the demand curve will lead to a change in the market equilibrium price and quantity. The rise in the popularity of music streaming services because of taste and fashion has increased the demand for music streaming services. This leads to an increase in the equilibrium price from $10 to $15 and an increase in the quantity of music streaming from 2 million to 3 million units. This is shown in diagram 2.10.</p><hr class="hidden"><hr class="hidden"><h4><strong>Change in supply</strong></h4><p><img alt="" height="258" src="../../../ib/economics/images/textbook/market-theory/picture-15.png" style="float: left;" width="407">In the same way as a change in non-price factors changes demand, a change in a non-price supply factor will shift the supply curve and lead to a change in the equilibrium price and quantity. An improvement in technology in the television market has led to an increase in the supply of televisions in diagram 2.11. This results in a fall in the price from $400 to $300 and an increase in the quantity of televisions traded from 5 million to 6 million units.</p><hr class="hidden"><h3><strong>Functions of the price mechanism</strong></h3><h4><strong>The allocation of resources</strong></h4><p>Resource allocation is the distribution of the factors of production to different markets in the economy. In free markets, the price mechanism guides resources to different markets through what Adam Smith called ‘the invisible hand’. In this theory, price is seen to have two functions in allocating resources, the signalling and incentive functions of price.</p><h4><strong>The signalling function of price<img alt="" height="282" src="../../../ib/economics/images/textbook/market-theory/picture-16.png" style="float: right;" width="438"></strong></h4><p>When a price changes in a market, it sends information (a signal) to producers and consumers that market conditions are changing, and the price change provides them with information to make decisions on how they might act in response to the price change. Diagram 2.12 shows the market for olive oil. If there is an increase in demand for olive oil, there will be excess demand at the existing market price of $4 per litre. For the market to clear the market price needs to rise.</p><hr class="hidden"><p>The rise in price is a signal to consumers and producers in the olive oil market that market conditions are changing and provides them with information to make buying and selling decisions.</p><hr class="hidden"><h4><strong>The incentive function of price</strong></h4><p>Once a price change has sent a signal to consumers and producers, they react to the price change based on the incentive to try and maximise their profits, in the case of producers and utility in the case of consumers. As the price of olive oil rises in diagram 2.12 producers have the incentive to increase the quantity they supply because the higher price means they can earn more profit from increasing the quantity supplied to the olive oil market. The quantity demanded of olive oil falls as the price increase means consumers receive less utility for each $ they spend on olive oil. When quantity demanded equals quantity supplied the market reaches an equilibrium price of $5 with 6 million litres traded.</p><h4><strong>Opportunity cost<img alt="" height="299" src="../../../ib/economics/images/textbook/market-theory/picture-17.png" style="float: left;" width="428"></strong></h4><p>As the quantity supplied of olive oil increases more resources are attracted to the olive oil market. This is shown by a movement along the PPC in diagram 2.13. As more resources are allocated to the olive oil market output rises from 140 units to 200 units. This results in an opportunity cost of 30 units of corn oil as fewer resources are allocated to the corn oil market and output falls from 70 units to 40 units.</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4>Inquiry case example - Price changes in the second-hand ticket market</h4></div></div></div><p><img alt="" src="../../../ib/economics/images/textbook/market-theory/picture-18.png" style="float: right; width: 407px; height: 228px;" title="https://www.royalalberthall.com/about-the-hall/our-history/explore-our-history/royal-albert-hall-stars/adele/">The second-hand market for concert tickets is very much part of the live music market with many businesses entering the market since the internet has evolved. Companies such as StubHub and Viagogo offer tickets for virtually every music event. The system works by matching people who have tickets to sell for an event with people who want to buy tickets but were unable to get tickets because the event has sold out.</p><hr class="hidden"><p>If, for example, you want to see the female vocalist, Adele and the official tickets have sold out then you can go to an online seller like Viagogo and buy tickets. They may, however, be much more expensive than the official price of $89. Viagogo may well be selling tickets for Adele at $400. The price of Adele tickets in the second-hand market may rise when demand for them increases because there will be a shortage in the online market. The rising price gives information to buyers and sellers (signalling function) about the strength of demand for the tickets and the higher the price attracts more people to offer tickets for sale (incentive function) in the market. This type of buyer and seller behaviour illustrates the influence of the signalling and incentive functions of price in a market. </p><h5><a href="../../../media/ib/economics/images/textbook/market-theory/market-equilibrium/concert-tickets.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></h5><h5><strong>Question</strong></h5><p><strong>Using the signalling and incentive functions of price explain how the allocation of resources changes when the demand for a good increases. [10]</strong></p><section class="tib-hiddenbox"><p>Answers might include:</p><ul><li><img alt="" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/concert-tickets.jpg" style="float: right; width: 400px; height: 252px;">Definitions of signalling and incentive functions of price, resources and demand.</li><li>A diagram to show the reallocation of resources when demand increases. This is shown in the diagram when demand increases from D to D1.</li><li>An explanation that an increase in demand for a good causes excess demand at the original price. For the market to clear price has to increase and this sends a signal to producers and consumers about changing market conditions.</li></ul><hr class="hidden"><ul><li>The rise in price also provides an incentive for producers to increase quantity supplied and for consumers to reduce quantity demanded until a new equilibrium is set in the market.</li><li>The change in price means more resources will be allocated to the market. In this case the concert ticket market.</li><li>An example to support the explanation of the signalling and incentive functions of price such as the concert market in this case.</li></ul></section><h5><strong>Investigation</strong></h5><p><strong>Research into the market for sports, music or event tickets where the secondary market ticket price is significantly above the original selling price. </strong></p></div><div class="blueBg"><h3><strong>Market efficiency</strong></h3><h4><strong>Allocative efficiency</strong></h4><p>Market allocative efficiency occurs when the quantity of resources allocated to a market maximises the community or social surplus in that market. This means resources are allocated so that the consumer and producer surplus are both maximised. This occurs when demand equals supply in a market.</p><h4><strong>Consumer surplus<img alt="" height="288" src="../../../ib/economics/images/textbook/market-theory/picture-19.png" style="float: right;" width="452"></strong></h4><p>The consumer surplus is the difference between the price the consumer is willing to pay for a good and the market price of that good. The demand curve expresses the price the consumer is willing to pay for the product. For example, the market price for hamburgers is $5 and this is shown in diagram 2.14.</p><hr class="hidden"><p>The demand curve shows that some consumers are willing to pay more than the market price of $5. Some consumers, for example, may be willing to pay $6 for a hamburger but they only need to pay the market price of $5, which is a consumer surplus of ($6 - $5) $1. </p><hr class="hidden"><p>The consumer surplus is shown by the green shaded area in diagram 2.14. The consumer surplus is an important concept and it has many applications in economic analysis. The consumer surplus can be calculated by working out the size of the green shaded area in diagram 2.14. In this example, the calculation is:</p><p>($9.00 – $5.00 x 600,000) / 2 = $1,200,000</p><h4><strong>Producer surplus</strong></h4><p><img alt="" height="198" src="../../../ib/economics/images/textbook/market-theory/big-mac.png" style="float: left;" title="https://www.delish.com/uk/food-news/a29639342/mcdonalds-big-macs-99p/" width="312">The producer surplus is the difference between the price the producer is willing to sell their good for and the market price of the good. The price the producer is willing to sell for is expressed by the supply curve which is based on the cost of producing the good. The producer could sell for less than the equilibrium price, but it would not be rational to do this because the producer can make a higher profit by selling at the market price. A producer in our hamburger example might be willing to sell a hamburger for $2 which is a producer surplus of ($5 - $2) $3. The producer surplus is shown by the yellow shaded area in diagram 2.14.</p><hr class="hidden"><p>The producer surplus can be calculated by working out the size of the yellow shaded area in diagram 2.14. In this example, the calculation is:</p><p>($5.00 – $2.00 x 600,000) / 2 = $900,000</p><hr class="hidden"><p><strong>Social (Community) surplus</strong></p><p>Welfare is maximised in society when the social or community surplus in a market is maximised. This is where the benefit to society of the production and consumption of a good is equal to its cost. The social surplus is the sum of the consumer surplus and producer surplus in a market. In diagram 2.14 this is the total area represented by the green and yellow triangles. In this example, the calculation is:</p><p>($9.00 - $2.00 x 600,000) / 2 = $2,100,000</p></div><div class="pinkBg"><div class="panel" style="box-shadow: rgba(0, 0, 19, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4>Inquiry case example - Airlines capturing consumer surplus</h4></div></div><div class="panel-footer" style="background-color: rgba(39, 45, 105, 0.1);"><div><p>text</p></div></div></div><p>The market equilibrium price for an airline flight from Ne<img alt="" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/business-class-air-travel.jpg" style="float: right; width: 300px; height: 246px;">w York to Abu Dhabi is around $700. If you do a Google search you will find carriers such as Virgin, British Airways and Etihad all charge around this price for an economy ticket for this 13-hour return trip. The airlines, however, know some consumers are willing to pay a much higher price than $700.</p><hr class="hidden"><p>Business travellers, for example, who need to travel for work and whose business is paying are probably willing to pay much more than $700. The business traveller paying $700 for a ticket may well be willing to pay $1500 and therefore have a consumer surplus of $800 ($1500 - $700). The airlines understand this and have developed ways of capturing this surplus. If you make the airline seat bigger, offer high-quality onboard food and drink throughout the trip and give the passenger a luxury lounge to relax in before their flight you can charge a much higher price and capture some consumer surplus. The Etihad business class ticket New York to Abu Dhabi is $2900.</p><p><a href="../../../media/ib/economics/images/textbook/market-theory/market-equilibrium/airline-questions.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></p><h4>Questions</h4><p><strong>a. Explain the difference between the consumer and producer surplus. [4]</strong></p><section class="tib-hiddenbox"><p>The consumer surplus is the difference between the price the consumer is willing to pay for a good and the market price of that good. The producer surplus is the difference between the price the producer is willing to sell their good for and the market price of the good.</p></section><p><strong>b. Explain how airlines charging different prices for different tickets allows them to capture consumer surplus. [4]</strong></p><section class="tib-hiddenbox"><p>Some consumers are willing to pay a higher price for an airline ticket than the market price. For example, the market price for a ticket might be $700 and some consumers might be willing to pay $1000. This is a $300 consumer surplus. By creating a business class ticket, the airline can capture the consumer surplus of business travellers who are willing to pay more because they need to travel for work. The business class ticket the airline sells needs to be a higher quality product than the economy ticket to attract the business traveller to pay a higher price.</p></section><h5><strong>Investigation</strong></h5><p><strong>Research into the airline industry to see how important different classes of travel are for airline businesses trying to gain consumer surplus and earn higher profits. </strong></p></div><div class="panel panel-has-footer" style="box-shadow: rgba(51, 0, 0, 0.3) 0px 10px 30px -15px; border-color: rgb(124, 7, 21);"><div class="panel-heading" style="background-color: rgb(124, 7, 21);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><p>Thinking about of key concept - change</p></div></div><div class="panel-body"><div><p>The signalling and incentive functions of price in the market can be used to explain the way resources are allocated in a market. In the olive oil market used in this chapter to illustrate the signalling and incentive functions of price, it is an increase in demand that starts to change the allocation of resources as output in the olive oil market increases. The growth in the olive oil industry will cause changes that affect different stakeholders associated with the market. Think about the way growth in the olive oil market might lead to changes that affect dairy farmers, the health of consumers and the local communities in places where olives are grown.</p></div></div></div><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h3>Now test yourself</h3></div></div></div><div class="tib-quiz" data-quiz-id="983" data-structure="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" data-score-answers="6d4a526a457a48584f763758344a7649472f76324c53614b78524c393439595570496d5a5971374b38686f3d"><p> </p><div class="exercise"><div class="q-question"><p> </p><p>When there is disequilibrium in a market and prices fall, which of the following is the most likely reason for the disequilibrium?</p></div><div class="q-answer"><p><label class="radio" data-answer="b69d87f6dbed81e34e5aa212297d8da9"><input type="radio"><span> Quantity demanded equals quantity supplied</span></label></p><p><label class="radio" data-answer="d04c48beda9f0c670ae111fc386ee918"><input type="radio"><span> Quantity supplied is greater than quantity demanded</span></label></p><p><label class="radio" data-answer="8529b58e19f59996b8bcd2267563b3d4"><input type="radio"><span> There is equilibrium quantity demanded but not quantity supplied</span></label></p><p><label class="radio" data-answer="10b5f242da79e48bbfae43d0c9aac422"><input type="radio"><span>Quantity demanded is greater than quantity supplied</span></label></p></div><div class="q-explanation"><p>When quantity supplied is greater than quantity demanded price falls in a market.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>The market for a normal good is in equilibrium and demand for the good increases. Which of the following outcomes is most likely?</p></div><div class="q-answer"><p><label class="radio" data-answer="a94b0767ac3df73b8989d1b6f80d2861"><input type="radio"><span> Both price and quantity fall</span></label></p><p><label class="radio" data-answer="d947319c29af90e7cbd350eba150c5a3"><input type="radio"><span> Quantity increases but price falls</span></label></p><p><label class="radio" data-answer="5554ce6ea47627dbaed9fa90194a06bf"><input type="radio"><span> Both price and quantity increase</span></label></p><p><label class="radio" data-answer="0681dcf5b10c4688ae1eb583b0ce7acd"><input type="radio"><span> Price increases but quantity decreases</span></label></p></div><div class="q-explanation"><p>When demand increases with a given upward-sloping supply curve both price and quantity increase.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is most likely to cause the equilibrium price in the market for good A in the diagram to fall?</p><p><img alt="" src="../../../ib/economics/images/textbook/market-theory/market-equilibrium/multiple-choice.jpg" style="float: left; width: 400px; height: 271px;"></p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p></div><div class="q-answer"><p> </p><p><label class="radio" data-answer="43d8a33c5a0fc5a2dc0ec4c0329b9ca2"><input type="radio"><span>Fall in the cost of components used to produce the good</span></label></p><p><label class="radio" data-answer="70db1346632920693cedfcf828af5caf"><input type="radio"><span>Rise in household income</span></label></p><p><label class="radio" data-answer="0a45bc4b82af714ab22262774c34264f"><input type="radio"><span>Rise in the minimum wage</span></label></p><p><label class="radio" data-answer="7d0f45527949d8a581efeb8834e9aded"><input type="radio"><span>Fall in the price of a complement for good A</span></label></p></div><div class="q-explanation"><p>If the cost of components falls, then supply increases and the equilibrium price in the market for good A falls.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following best describes the incentive function of price?</p></div><div class="q-answer"><p><label class="radio" data-answer="7ed38862847767394ffd0d85eae15d78"><input type="radio"><span> As prices fall there is less incentive for consumers to buy a good because they receive less utility for each $US they spend</span></label></p><p><label class="radio" data-answer="32cdcd9f79230b65556c4935a755474f"><input type="radio"><span> When price increases firms can earn more profit from a market and they have the incentive to increase quantity supplied</span></label></p><p><label class="radio" data-answer="8600c1cc1bf45a7d23a05877f27fec21"><input type="radio"><span> As price increases in a market, there is an incentive for producers to reduce supply because less profit can be made in the market</span></label></p><p><label class="radio" data-answer="6b209a56d31cdc49ed5e7b4b6b674561"><input type="radio"><span> When prices decrease quantity supplied increases because the costs of producers in the market have fallen</span></label></p></div><div class="q-explanation"><p>The incentive function of price for the producer is how a rise in price creates a greater incentive for them to increase output.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>In market X, which one of the following statements is not true?</p><p><img alt="" src="../../../ib/economics/images/textbook/mc-questions/surpluses.jpg" style="float: left; width: 266px; height: 185px;"></p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p></div><div class="q-answer"><p> </p><p><label class="radio" data-answer="5def8c246f4d48ebe707804388d8e044"><input type="radio"><span>Area B is the producer surplus</span></label></p><p><label class="radio" data-answer="ff84c20e5c0415fb9bf9024c381f3abc"><input type="radio"><span>The market is in equilibrium</span></label></p><p><label class="radio" data-answer="cf0815b59025daa5738b5c1dae2145b2"><input type="radio"><span>Area A – B is the social/community surplus</span></label></p><p><label class="radio" data-answer="fcbbdb839eda4d3d8142e93d4b8d72ff"><input type="radio"><span>Areas A is the consumer surplus</span></label></p></div><div class="q-explanation"><p>Area A + B is the social/community surplus.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following would be shown on a demand and supply diagram for good X if the market for good X was initially in equilibrium and the demand for good X increased?</p></div><div class="q-answer"><p><label class="radio" data-answer="8fa2f0a6587675a36086fc749e2996b6"><input type="radio"><span> Excess supply of good X at the new equilibrium price</span></label></p><p><label class="radio" data-answer="5c44672e276efda56774dac12555cc86"><input type="radio"><span> Excess demand for good X at the new equilibrium price</span></label></p><p><label class="radio" data-answer="632ac793eef0cf5af382702456965417"><input type="radio"><span> Excess supply of good X at the initial equilibrium price</span></label></p><p><label class="radio" data-answer="c36f46f8c20607650f628d2299a18eeb"><input type="radio"><span> Excess demand for good X at the initial equilibrium price</span></label></p></div><div class="q-explanation"><p>There would be excess demand for good X at the initial equilibrium until the price of good X had increased and allowed the market to clear.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><p> </p><div class="exercise"><div class="q-question"><p>The data in the table is for the market for pineapples.</p><table align="left" border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:85px;"><p align="center">Price per unit $</p></td><td style="width:142px;"><p align="center">Quantity demanded (millions)</p></td><td style="width:161px;"><p align="center">Quantity supplied</p><p align="center">(millions)</p></td></tr><tr><td style="width:85px;"><p align="center">1.50</p></td><td style="width:142px;"><p align="center">5</p></td><td style="width:161px;"><p align="center">9.5</p></td></tr><tr><td style="width:85px;"><p align="center">1.40</p></td><td style="width:142px;"><p align="center">6</p></td><td style="width:161px;"><p align="center">9</p></td></tr><tr><td style="width:85px;"><p align="center">1.30</p></td><td style="width:142px;"><p align="center">7</p></td><td style="width:161px;"><p align="center">8.5</p></td></tr><tr><td style="width:85px;"><p align="center">1.20</p></td><td style="width:142px;"><p align="center">8</p></td><td style="width:161px;"><p align="center">8</p></td></tr><tr><td style="width:85px;"><p align="center">1.10</p></td><td style="width:142px;"><p align="center">9</p></td><td style="width:161px;"><p align="center">7.5</p></td></tr><tr><td style="width:85px;"><p align="center">1.00</p></td><td style="width:142px;"><p align="center">10</p></td><td style="width:161px;"><p align="center">7</p></td></tr></tbody></table><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><hr class="hidden"><p>Which of the following is the equilibrium price?</p></div><div class="q-answer"><p><label class="radio" data-answer="6675bd37ec229fdbef481f662fa6bac6"><input type="radio"><span> <dollar>$</dollar>1.40</span></label></p><p><label class="radio" data-answer="3644c7126b82c91700c88b6ad0d534f3"><input type="radio"><span> <dollar>$</dollar>1.30</span></label></p><p><label class="radio" data-answer="21ac9fd56001b0b3ed1ed3080afc8ad7"><input type="radio"><span> <dollar>$</dollar>1.10</span></label></p><p><label class="radio" data-answer="ee3a3b316b9efc86191d78867e296af7"><input type="radio"><span> <dollar>$</dollar>1.20</span></label></p></div><div class="q-explanation"><p>At <dollar>$</dollar>1.20 quantity demanded equals quantity supplied.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>A market is in equilibrium when:</p></div><div class="q-answer"><p><label class="radio" data-answer="7f5e014205a70c2a7b0594389345737c"><input type="radio"><span> There is no tendency for price to change</span></label></p><p><label class="radio" data-answer="83c66ee3dacbf036050e3eb104192d4b"><input type="radio"><span> Producer profit is maximised</span></label></p><p><label class="radio" data-answer="cd23bde0c7cf05278b1347d0b2c3ad20"><input type="radio"><span> Quantity demand is greater than quantity supplied</span></label></p><p><label class="radio" data-answer="dd79c20f0a18b0493bdf05e5d6dc3b80"><input type="radio"><span> Consumer utility is maximised</span></label></p></div><div class="q-explanation"><p> </p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following statements about the price mechanism is least likely to be true?</p></div><div class="q-answer"><p><label class="radio" data-answer="4a950a4cd91491233488e7b1164e116d"><input type="radio"><span> It provides consumers and producers with information about market conditions</span></label></p><p><label class="radio" data-answer="88a563bb844b7e886fe7404fa6c98204"><input type="radio"><span> It can act as an incentive for consumers to change the quantity they demand for a good</span></label></p><p><label class="radio" data-answer="f7b6777ef2df608c284fb5e9f54ccc08"><input type="radio"><span> It is impossible for the government to influence</span></label></p><p><label class="radio" data-answer="cfc6336da4808fb1dfd8f9860bd1d774"><input type="radio"><span> It rations the goods available in a market</span></label></p></div><div class="q-explanation"><p>Governments can influence the market price and quantity through policies such as indirect tax and subsidies.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>If the price of a complement for a mobile phone increases which of the following is the most likely effect on the equilibrium price and quantity in the mobile phone market?</p></div><div class="q-answer"><p><label class="radio" data-answer="b45dd11021b1b55a9cdfc2790ea5e12c"><input type="radio"><span> Price increases and quantity increases</span></label></p><p><label class="radio" data-answer="ec151d53e8fb0bf702211f3851131c0d"><input type="radio"><span> Price decreases and quantity decreases</span></label></p><p><label class="radio" data-answer="b775db5639aa603f74ba7d57f769ac2b"><input type="radio"><span> Price increases and quantity decreases</span></label></p><p><label class="radio" data-answer="d58b9d96f5367a03f42a53524c084f93"><input type="radio"><span> Price decreases and quantity increases</span></label></p></div><div class="q-explanation"><p>An increase in the price of a complement for mobile 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