All Flashcards
Analyze the graph of market equilibrium. What does the intersection point represent?
The intersection point represents the equilibrium price and quantity where supply equals demand.
Analyze the graph of consumer surplus. What area represents consumer surplus?
The area below the demand curve and above the equilibrium price represents consumer surplus.
Analyze the graph of producer surplus. What area represents producer surplus?
The area above the supply curve and below the equilibrium price represents producer surplus.
In a supply and demand graph, what happens to the equilibrium if demand increases?
The equilibrium price and quantity both increase.
In a supply and demand graph, what happens to the equilibrium if supply decreases?
The equilibrium price increases, and the equilibrium quantity decreases.
How does a price ceiling affect consumer and producer surplus on a graph?
A price ceiling creates a shortage, reducing producer surplus and potentially consumer surplus, and creates deadweight loss.
How does a price floor affect consumer and producer surplus on a graph?
A price floor creates a surplus, reducing consumer surplus and potentially producer surplus, and creates deadweight loss.
What does a shift in the demand curve to the right indicate?
An increase in demand at every price level.
What does a shift in the supply curve to the left indicate?
A decrease in supply at every price level.
On a graph, how is total surplus represented at equilibrium?
Total surplus is represented by the sum of the areas of consumer and producer surplus, maximized at equilibrium.
How does market equilibrium apply to the price of gasoline?
The price of gasoline is determined by the intersection of supply and demand, reflecting equilibrium.
How does consumer surplus apply to buying a discounted item?
If you buy an item on sale, your consumer surplus is the difference between what you would have paid and the sale price.
How does producer surplus apply to a farmer selling crops?
If a farmer sells crops for more than their minimum acceptable price, they gain producer surplus.
How does consumer surplus change when the price of a product increases?
Consumer surplus decreases because the difference between willingness to pay and the market price shrinks.
How does producer surplus change when the price of a product decreases?
Producer surplus decreases because the difference between the market price and minimum acceptable price shrinks.
How does market equilibrium relate to allocative efficiency?
Market equilibrium leads to allocative efficiency because resources are allocated to their most valued uses, maximizing total surplus.
How does a shortage affect consumer and producer surplus?
A shortage typically reduces consumer surplus and can increase producer surplus if prices rise, but it also creates deadweight loss.
How does a surplus affect consumer and producer surplus?
A surplus typically increases consumer surplus (due to lower prices) and reduces producer surplus, also creating deadweight loss.
How does consumer surplus relate to the demand curve?
Consumer surplus is the area below the demand curve and above the market price, representing the total benefit consumers receive.
How does producer surplus relate to the supply curve?
Producer surplus is the area above the supply curve and below the market price, representing the total benefit producers receive.
What are the differences between consumer surplus and producer surplus?
Consumer surplus is the benefit to buyers; producer surplus is the benefit to sellers. They are on opposite sides of the equilibrium price.
What are the differences between a price ceiling and a price floor?
A price ceiling is a maximum price; a price floor is a minimum price. Ceilings cause shortages; floors cause surpluses.
What are the differences between a shortage and a surplus?
A shortage is when demand exceeds supply; a surplus is when supply exceeds demand. Shortages put upward pressure on price; surpluses put downward pressure.
What are the differences between individual and total consumer surplus?
Individual consumer surplus is for one buyer; total consumer surplus is the sum of all individual surpluses.
What are the differences between individual and total producer surplus?
Individual producer surplus is for one seller; total producer surplus is the sum of all individual surpluses.
Compare and contrast the effects of a tax and a subsidy on market equilibrium.
A tax increases price and decreases quantity; a subsidy decreases price and increases quantity. Both create a wedge between buyer and seller prices.
Compare and contrast the effects of a quota and a tariff on trade.
Both restrict trade, but a tariff generates government revenue while a quota does not (revenue goes to quota holders).
What are the differences between allocative and productive efficiency?
Allocative efficiency means resources are used where they are most valued by society. Productive efficiency means goods are produced at the lowest possible cost.
What are the differences between positive and normative economics?
Positive economics is about facts and cause-and-effect relationships. Normative economics is about value judgments and what should be.
What are the differences between microeconomics and macroeconomics?
Microeconomics studies individual markets and decisions. Macroeconomics studies the economy as a whole.