Module 4 Flashcards
______ describe relations between buyers and sellers – or, what happens when demand curves and supply curves come together.
Markets
The price and quantity designated by the intersection of demand and supply curves is usually referred to as the
________ or _________.
“market outcome;” “market equilibrium”
When prices exceed the equilibrium price, quantity supplied exceeds quantity demanded, resulting in _______ of the product.
excess supply
When prices are lower than the equilibrium price, quantity demanded exceeds quantity supplied,
resulting in ___________ for the product.
excess demand
Situations of excess demand or excess supply typically result in _________ until market equilibrium is reached.
price adjustments
At market equilibrium, consumer surplus + producer surplus (also known as the “total welfare” or “total surplus”) is maximized : this is the property of ________.
efficiency
________: a loss in value from trades between buyers and sellers that could have occurred but did not.
dead-weight loss
The principle of ______: Market equilibrium need not ensure an equal or “fair” distribution of surplus between consumers and producers, however, or across consumers or producers.
equity
The distribution of consumer versus producer surplus depends on the ______ of demand and supply curves, among other things.
elasticity
Factors that _____ demand and supply curves also result in changes in the market equilibrium.
shift
Predicting how demand and supply curves might shift in the future is important in understanding how a firm’s _____, or ________, might change.
profits; consumer surplus
A firm that is making substantial profits in the short-run may return to _____ profits in the long-run.
zero
Some reasons that allow firms to sustain profits in the long-run include (5):
- government regulation
- economies of scale
- network effects
- sustained innovation
- other “barriers to entry.”
________ in markets (by governments or other actors) are often undertaken in an effort to achieve “fairer” outcomes.
Interventions
Common forms of intervention involve ________ or ________.
price ceilings; price floors.
A price ceiling sets a ______ price that can be charged for a product.
maximum
If the maximum price is above the market outcome, the price ceiling will ________.
have no effect
If the ceiling is lower than the market outcome, more consumers will want to purchase the good than producers will want to sell it, resulting in _____ or a shortage.
“excess demand”
A price floor sets a ________ price that can be charged for a product
minimum (e.g., a minimum wage mandate)
Price floors result in ______, or _______.
excess supply; surpluses (In the case of a minimum wage, a surplus would be unemployment)
Such interventions in markets (that lead to excess demand or supply) can often result in __________ where
prices adjust to eliminate the shortage or surplus.
informal side markets
The analysis of any market intervention typically requires analyzing (a) what happens to ____ demand and supply curves, and (b) how these changes affect ________.
both; market equilibrium
A tax levied on a firm or producer will, in effect, ______ the cost of producing the good – and shift the supply curve ______.
increase; upward (or to the left)
A tax levied on consumers will, in effect, _____ the demand curve that firms face.
reduce (or shift leftward)
A tax will have the same impact on market equilibrium whether it is ________ charged to the producer or the consumer: the economic incidence of a tax is unrelated to its statutory incidence.
explicitly (or “statutorily”)
Whether consumers or producers ____ a higher portion of the tax will depend on the elasticity of demand and supply
curves.
“pay”
______ bear most of the tax cost if the demand curve is steeper (or “inelastic”).
Consumers
______ bear most of the tax cost if the supply curve is steeper.
Producers
Taxes, like price ceilings and price floors, decrease the ________ captured in a market (resulting in dead-weight loss).
total surplus
Markets can be created in environments where they may not previously have existed, by ________ ownership of a
good to individuals, or by ______ a forum in which individuals can trade.
assigning; creating
One interesting application of markets is ________ markets, in which buyers and sellers purchase _______ whose value depends on future events.
prediction; “securities”
