Micro Flashcards
Tax effect with relatively inelastic supply
tax incidence falls on seller
long run-supply curves v. short-run supply curves
long-run supply curves are MORE ELASTIC and FLATTER than short-run supply curves
law of demand
as price decreases, quantity demanded increases
law of supply
as price increases, quantity supplied increases
change in quantity demanded or supplied
movement along the demand or supply curve when equilibrium price changes (change in price)
increases or decreases in supply or demand
shift of the supply or demand curve, due to change in one of the independent variables other than price
excess supply
price is above its equilibrium level
excess demand
price is below equilibrium level
consumer surplus
excess of the total value to consumers of the units they purchase above the total amount paid
difference between price paid and marginal benefit
producer surplus
excess of the amount producers receive for the units they sell above their total cost of production
marginal cost
supply curve (when no external costs or benefits associated with production and consumption of good)
marginal benefit
demand curve (when no external costs or benefits associated with production and consumption of good)
underproduction
producing at a quantity less than equilibrium.
consumers are willing to pay more than the cost to supply
MB > MC
overproduction
producing at a quantity greater than equilibrium
consumers are willing to pay less than the cost to supply
MB < MC
deadweight loss
decrease in total surplus that results from an inefficient level of production
tax on suppliers
equilibrium Price increases, equilibrium quantity decreases
actual incidence of tax given inelastic demand
buyers suffer the greater burden
actual incidence of tax given inelastic supply
sellers suffer the greatest burden
subsidies
lead to overproduction
external costs of production
when not borne by suppliers, result in a deadweight loss from overproduction
external benefits of consumption
when not realized by consumers, they consume less than efficient quantity of good, resulting in deadweight loss
price ceiling
results in underproduction and excess demand, non-price allocation to consumers, and deterioration of the quality of the good
price floor on wages
excess supply of unskilled labor and increased unemployment, non-wage worker benefits will be reduced, and producers will substitute other factors of production, including capital equipment and skilled labor, for unskilled labor
price elasticity of demand
ratio of the percent change in quantity demanded to the percent change in price