1. What is equilibrium price and why is it the only price at which all items can be sold?

2. What does it mean when a market is cleared?

1. What is a surplus and what must producers do to eliminate it?

2. What is a shortage and how do producers respond to it?

3. How do price adjustments move markets toward equilibrium when there are surpluses or shortages?

1. How do you identify a surplus on a supply and demand graph and what does it indicate about the relationship between quantity supplied and quantity demanded?

2. How do you identify a shortage on a supply and demand graph and what does it indicate about the relationship between quantity supplied and quantity demanded?

1. What are the three steps for analyzing how an event affects equilibrium price?

2. How does an increase in demand affect equilibrium price and quantity?

3. How does a decrease in supply affect equilibrium price and quantity?

4. What are the two principles that describe how price responds to changes in demand and supply?

1. What is perfect competition and what four conditions must exist for it to occur?

2. Why do the conditions of perfect competition rarely exist in real-world markets?

3. What three roles do prices play in a market economy?