Market Analysis Flashcards
What is consumer surplus?
The value consumers receive from participating in the market. The area below demand and above the price
What is producer surplus
The benefit producers get from participating in the market. The are below price but above the supply curve
How does an inwardly shift in supply affect consumer surplus
It decreases it
When is dead weight loss the largest regarding elasticity
When supply and demand are the most elastic
Why do price floors or price ceiling’s create dead weight loss
Because they prevent some transactions that would have lead to surplus from occurring or capping the profits leading to decreased supply
What happens in a market when a quota is introduced
Dead weight loss is created but no excess demand or supply as prices can adjust and clear the market
In the supply and demand model does the government gain more from taxation than consumers loose surplus
No due to the dead weight
What does the tax incidence mean
Who actually bears the burden of the tax. Whose surplus decrease the most
What can elasticity tell us about tax incidence
The least elastic side of the market loose more on the tax as it cannot as easily shift the away from the taxed good
How does a subsidy affect surplus
Both consumer and producer surplus is increased but dead weight loss still occur as the cost of the subsidy is greater than the increased surplus
What is demand choke price
The point at which demand is zero
When is a price ceiling or floor non binding
When it is above or below equilibrium resectively
