Equilibrium Flashcards
equilibrium price
the price supplied and demanded at the equilibrium
equilibrium quantity
The quantity supplied and demanded at equilibrium
market equilibrium
when the market supply and demand are balanced (every seller can find a buyer, and every buyer can find a seller)
price controls
a minimum or maximum price set by the government
price ceiling
A government mandated maximum price in a market
price floor
a government mandated minimum price in a market
binding price floor
occurs when the price floor is set above the equilibrium price
binding price ceiling
occurs when the price ceiling is set below the equilibrium price
quota
a government regulation on the amount of goods that can be exchanged in a market
quota limit
the maximum amount of goods that can be exchanged under a quota
When price is below the equilibrium it will cause a..
shortage
shortages causes the price to
rise
When price is above the equilibrium it will cause a..
surplus
surpluses cause the price to..
fall
An increase in demand leads to a
higher price and higher quantity
A decrease in demand leads to a
lower price and lower quantity
3-step recipe for predicting market outcomes
- determine which curve is shifting
- determine if its an increase or decrease
- determine how prices & quantities change the equilibrium
An increase in supply leads to
lower prices and a larger quantity
an decrease in supply leads to
higher prices and lower quantity
Deadweight loss
The lost surplus from an inefficient outcome
consumer surplus
when consumers buy goods for cheaper than their marginal benefit (CS=MB-P)
Producer Surplus
when producers sell goods at a higher price than their marginal cost (PS=P-MC)
Economic surplus/Total surplus
Consumer surplus + producer surplus OR marginal benefit - marginal cost
Deadweight loss formula
TS*-TS OR calculate the area of the triangle that represent DWL on the graph
other sources of inefficiency from price controls:
-inefficient allocation of units among firms and consumers
-wasted time/resources
-inefficient quality
