ECONOMICS Study Guide - final Guide: Economic Equilibrium, Monopsony, Market Power
Document Summary
A free market, if out of equilibrium, tends toward equilibrium. Free market = one in which prices and quantities are set by bargaining between fully informed buyers and sellers of the good being traded, not by legal restrictions or by actors with market power. - full information on both sides of the transaction, on the quality of the goods and on prices being offered by other buyers and sellers. - no market power, which would occur if there were only one seller (a monopolist) or only one buyer (a monopsonist). In addition, for a market equilibrium to be socially optimal, there should be no externalities, positive (scientific research) or negative (pollution) which affect parties who are not part of the market transaction. Equilibrium = equality of the quantity supplied and the quantity demanded; a state in which neither price or quantities show any tendency to change.
