Module 4

Question 1

______ describe relations between buyers and sellers – or, what happens when demand curves and supply curves come together.

Answer 1

Markets

Question 2

The price and quantity designated by the intersection of demand and supply curves is usually referred to as the
________ or _________.

Answer 2

“market outcome;” “market equilibrium”

Question 3

When prices exceed the equilibrium price, quantity supplied exceeds quantity demanded, resulting in _______ of the product.

Answer 3

excess supply

Question 4

When prices are lower than the equilibrium price, quantity demanded exceeds quantity supplied,
resulting in ___________ for the product.

Answer 4

excess demand

Question 5

Situations of excess demand or excess supply typically result in _________ until market equilibrium is reached.

Answer 5

price adjustments

Question 6

At market equilibrium, consumer surplus + producer surplus (also known as the “total welfare” or “total surplus”) is maximized : this is the property of ________.

Answer 6

efficiency

Question 7

________: a loss in value from trades between buyers and sellers that could have occurred but did not.

Answer 7

dead-weight loss

Question 8

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.

Answer 8

equity

Question 9

The distribution of consumer versus producer surplus depends on the ______ of demand and supply curves, among other things.

Answer 9

elasticity

Question 10

Factors that _____ demand and supply curves also result in changes in the market equilibrium.

Answer 10

shift

Question 11

Predicting how demand and supply curves might shift in the future is important in understanding how a firm’s _____, or ________, might change.

Answer 11

profits; consumer surplus

Question 12

A firm that is making substantial profits in the short-run may return to _____ profits in the long-run.

Answer 12

zero

Question 13

Some reasons that allow firms to sustain profits in the long-run include (5):

Answer 13

1. government regulation
2. economies of scale
3. network effects
4. sustained innovation
5. other “barriers to entry.”

Question 14

________ in markets (by governments or other actors) are often undertaken in an effort to achieve “fairer” outcomes.

Answer 14

Interventions

Question 15

Common forms of intervention involve ________ or ________.

Answer 15

price ceilings; price floors.

Question 16

A price ceiling sets a ______ price that can be charged for a product.

Answer 16

maximum

Question 17

If the maximum price is above the market outcome, the price ceiling will ________.

Answer 17

have no effect

Question 18

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.

Answer 18

“excess demand”

Question 19

A price floor sets a ________ price that can be charged for a product

Answer 19

minimum (e.g., a minimum wage mandate)

Question 20

Price floors result in ______, or _______.

Answer 20

excess supply; surpluses (In the case of a minimum wage, a surplus would be unemployment)

Question 21

Such interventions in markets (that lead to excess demand or supply) can often result in __________ where
prices adjust to eliminate the shortage or surplus.

Answer 21

informal side markets

Question 22

The analysis of any market intervention typically requires analyzing (a) what happens to ____ demand and supply curves, and (b) how these changes affect ________.

Answer 22

both; market equilibrium

Question 23

A tax levied on a firm or producer will, in effect, ______ the cost of producing the good – and shift the supply curve ______.

Answer 23

increase; upward (or to the left)

Question 24

A tax levied on consumers will, in effect, _____ the demand curve that firms face.

Answer 24

reduce (or shift leftward)

Question 25

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.

Answer 25

explicitly (or “statutorily”)

Question 26

Whether consumers or producers ____ a higher portion of the tax will depend on the elasticity of demand and supply
curves.

Answer 26

“pay”

Question 27

______ bear most of the tax cost if the demand curve is steeper (or “inelastic”).

Answer 27

Consumers

Question 28

______ bear most of the tax cost if the supply curve is steeper.

Answer 28

Producers

Question 29

Taxes, like price ceilings and price floors, decrease the ________ captured in a market (resulting in dead-weight loss).

Answer 29

total surplus

Question 30

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.

Answer 30

assigning; creating

Question 31

One interesting application of markets is ________ markets, in which buyers and sellers purchase _______ whose value depends on future events.

Answer 31

prediction; “securities”