Module 4 - Demand, Supply and Equilibrium Flashcards
When supply and demand move in the same direction, ___ is known and ___ is unknown (indeterminate).
Quantity traded is known
Price is unknown (indeterminate)
I.e., both demand and supply increase, quantity traded ↑/↓ (known) and price ↑/↓/same (unknown)
When supply and demand move in opposite directions, ___ is known and ___ is unknown (indeterminate).
Quantity traded is unknown (indeterminate)
Price is known
I.e., supply and demand move opposite, quantity traded ↑/↓/same (unknown) and price ↑/↓ (known)
___ is the price at which the quantity supplied of a G, S, R equals the quantity demanded; the price at which the demand and supply curves intersect.
Equilibrium price; also market-clearing price
___ is the quantity traded when the quantity supplied of a G, S, R equals quantity demanded.
Equilibrium quantity
Equilibrium is when ___ = ___; also market cleared.
Quantity supplied = quantity demanded
___ is a situation in which quantity demanded is greater than the quantity supplied at the current market price; excess demand.
Shortage
S-D < 0
___ is a situation in which the quantity supplied is greater than the quantity demanded at the current market price; excess supply.
Surplus
S-D > 0
___ is the lack of equilibrium resulting in increased scarcity and inefficiency.
Disequilibrium
Surplus and shortages = ___ =/= ___.
Units of output NOT dollars
___ is an increase or decrease in quantity demanded of a G, S, R at every price.
Change in demand
___ is a characteristic of the demand for a G, S, R other than it’s own price.
Nonprice determinant; also non-own-price determinant
On a graph, a shortage would cause ___ pressure on price.
Upward until supply and demand were at equilibrium
On a graph, a surplus would cause ___ pressure on price.
Downward until supply and demand were at equilibrium
When demand increases, ___ increase.
Both equilibrium price and equilibrium quantity
___ is an increase or decrease in quantity supplied of a G, S, R at every price.
Change in supply
A ___ is a maximum legal price at which a G, S, R can be sold.
Price ceiling
A ___ is a maximum legal price that is set above the existing equilibrium price.
Nonbinding price ceiling
Equilibrium price is lower than the price ceiling, the ceiling has no effect on market and is nonbinding
A ___ is a maximum legal price that is set below the existing equilibrium price; prevents the price from increasing to equilibrium.
Binding price ceiling
Equilibrium price is higher than the price ceiling, the ceiling restricts trade and is binding.
A ___ is a minimum legal price for which a G, S, R can be sold.
I.e., minimum wage for labor
Price floor
A ___ is a minimum legal price that is set below the existing equilibrium price.
Nonbinding price floor
Market equilibrium is greater than price floor, there is no effect and is nonbinding.
A ___ is a minimum legal price that is set above the existing equilibrium price; prevents the price from falling to equilibrium
Binding price floor
___ is the lowest wage firms can legally pay employees in labor markets.
Minimum wage
When a price floor is imposed on a market, it is binding only if it is ___ the equilibrium price.
Above
When the market price is above equilibrium price, market forces try to drive it lower, but it can’t go lower than the floor… as minimum wage increases, more people want to work, but jobs are limited due to only being able to afford less workers.
If equilibrium price is $6 (24 employees demanded, 24 employees supplied), but minimum wage is set to $9 (15 employees demanded, 30 employees supplied), what is the surplus of labor?
15 employees (unemployed) The surplus of labor caused by minimum wage is not the decrease in employees firms are willing and able to hire, it's the increased number of people willing and able to work at higher wages.
For firms, a tax doesn’t increase or decrease the quantity supplied at each price, instead it increases/decreases the cost of each unit – shifting the supply curve ___.
Up/Down
Not left or right
An ___ is a tax based on the number of units purchased, not the price paid for a good or service.
I.e., a tax on cigarettes sold
Excise tax
For firms, if the government imposes a tax on each unit sold, a shift in the supply curve would move ___ to intersect the demand curve.
Up
Tax Revenue = ___
Tax (quantity traded)
I.e., $6 tax (30,000 bottles wine) = 180,000 tax revenue
Taxes are imposed to do two things:
- ___
- ___
- Raise revenue for government actives
2. Discourage people from consuming a particular good or service
What are the implications of imposing taxes?
- ___
- ___
- They can be overestimated – overestimated revenue
2. If taxes are too high, consumers will be less likely to purchase G, S which reduces revenue
___ are the suppliers of labor.
Households
___ are the demanders of labor.
Firms
___ causes a shortage in the market.
Binding price ceiling
___ causes a surplus in the market.
Binding price floor
A shortage exists when ___.
Price is not allowed to adjust upwards
A surplus exists when ___.
Price is not allowed to adjust downwards
