Exam 2 Flashcards
States that the quantity buyers demand of a good depends negatively on the good’s price.
Law of Demand
States that the quantity sellers supply depends positively on the good’s price.
Law of Supply
The intersection of S and D curves determines?
Market Equilibrium
If the market price is above equilibrium, what happens to the price?
It falls
If the market price is below equilibrium, what happens to price?
It rises
What is it call if the market price is above market equilibrium?
Surplus
What is it called if the market price is below market equilibrium?
Shortage
The difference between what buyers are willing to pay for a good and what they actually pay
Consumer surplus
On a graph, the area between equilibrium P (horizontal line) and the Demand curve.
Consumer surplus
The difference between what sellers receive for a good and their cost of producing it
Producer surplus
On a graph, is the area between equilibrium price (horizontal line) and the Supply curve
Producer surplus
Means that total surplus is maximized, that the goods are produced by sellers with lowest cost, and that they are consumed by buyers who value them most
Economic efficiency
If the quantity produced is too high, the cost to Producers of the last unit is greater than the value Consumers derive from it. Firms produce too much.
Surplus
If the quantity produced is too low, the value to Consumers of the next unit produced exceeds the cost to Producers. Firms underproduce.
Shortage
A legal maximum on the price of a good.
Price Ceiling
A legal minimum on the price of a good
Price Floor
When a government imposes Price Controls
There is always a loss in economic efficiency
A tax on a good or service places a wedge between the price buyers pay and the price sellers receive. What happens as a result?
The equilibrium quantity to fall, whether the tax is imposed on buyers or sellers.
The fall in the Economic Surplus
Deadweight loss
