All Flashcards
What is market equilibrium?
Qd = Qs; the intersection of supply and demand curves.
What is disequilibrium?
Qd ≠ Qs; price is too high or too low.
Define shortage.
Qd > Qs; price is below equilibrium.
Define surplus.
Qs > Qd; price is above equilibrium.
What is consumer surplus?
The benefit consumers get when they pay less than they're willing to.
What is producer surplus?
The benefit producers get when they sell for more than they're willing to.
Define deadweight loss.
The loss of total surplus when the market is not at equilibrium.
What is an indeterminate outcome?
When both supply and demand shift simultaneously, the change in either price or quantity is uncertain.
Define price floor.
A minimum price set by the government, above the equilibrium price.
Define price ceiling.
A maximum price set by the government, below the equilibrium price.
How does a shortage apply to concert tickets?
High demand, limited tickets available, driving up prices or creating unmet demand.
How does a surplus apply to unsold goods in a store?
Too much stock, not enough demand, leading to clearance sales to reduce inventory.
How does increased demand affect equilibrium price and quantity for a new popular product?
Both equilibrium price and quantity increase due to higher consumer interest.
How does decreased demand affect equilibrium price and quantity for a fading fad?
Both equilibrium price and quantity decrease as consumer interest wanes.
How does increased supply affect equilibrium price and quantity due to new technology?
Equilibrium price decreases, and quantity increases because production becomes cheaper.
How does decreased supply affect equilibrium price and quantity after a natural disaster?
Equilibrium price increases, and quantity decreases due to disrupted production.
How does consumer surplus relate to getting a bargain?
It's the 'bargain' feeling; the difference between what you're willing to pay and what you actually pay.
How does producer surplus relate to profit?
It's the profit they make; selling for more than they're willing to.
How does a price floor on agricultural products affect the market?
It creates a surplus because the price is set above the equilibrium, leading to more supply than demand.
How does a price ceiling on rent affect the housing market?
It creates a shortage because the price is set below the equilibrium, leading to more demand than supply.
Analyze a graph showing a shortage.
Price is below equilibrium; Qd > Qs; area represents unmet demand.
Analyze a graph showing a surplus.
Price is above equilibrium; Qs > Qd; area represents excess supply.
Analyze a graph showing an increase in demand.
Demand curve shifts right; equilibrium price and quantity increase.
Analyze a graph showing a decrease in demand.
Demand curve shifts left; equilibrium price and quantity decrease.
Analyze a graph showing an increase in supply.
Supply curve shifts right; equilibrium price decreases, quantity increases.
Analyze a graph showing a decrease in supply.
Supply curve shifts left; equilibrium price increases, quantity decreases.
Identify consumer surplus on a supply and demand graph.
Area above the equilibrium price and below the demand curve.
Identify producer surplus on a supply and demand graph.
Area below the equilibrium price and above the supply curve.
Identify deadweight loss on a graph with a price floor.
The triangle representing lost surplus due to reduced quantity traded.
Identify deadweight loss on a graph with a price ceiling.
The triangle representing lost surplus due to reduced quantity traded.