Session 3: Exchange and markets Flashcards
In the traditional supply/demand graph, what is the point at which supply and demand intersect
Equilibrium
In the traditional supply/demand graph, what is the area under demand/above price?
Buyer surplus
In the traditional supply/demand graph, what is the area under demand/below price
Supplier surplus
In the traditional supply/demand graph, what does surplus represent?
Gains from trade
In the traditional supply/demand graph, where is the maximum surplus?
Equilibrium
When the market is in disequilibrium, and price is above the equilibrium price, what happens?
Quantity demanded falls
Deadweight loss occurs from right of new quantity to old equilibrium point
From 0 to new quantity, and old price to new price becomes producer/supplier surplus
What happens when activity occurs in upper left quadrant of supply/demand graph?
Price up, Quantity down
Supply decreased
What happens when activity occurs in upper right quadrant of supply/demand graph?
Price up, Quantity up
Demand increased
What happens when activity occurs in lower left quadrant of supply/demand graph?
Price down, Quantity down
Demand decreased
What happens when activity occurs in lower right quadrant of supply/demand graph?
Price down, Quantity up
Supply increased
What happens when a price floor occurs?
Price is set above equilibrium price
At new price, quantity demanded is less than quantity supplied (surplus)
Producers capture area above old equilibrium price and below new price
Area between new quantity demanded and old equilibrium price is deadweight loss
Willingness to buy decreases
Willingness to sell increases
What happens when a price ceiling occurs?
Price is set below equilibrium price
At new price, quantity demanded is more than quantity supplied (shortage)
Consumers capture area above new price and old equilibrium price
Area between new quantity demanded and old equilibrium price is deadweight loss
Willingness to buy increases
Willingness to sell decreases
What occurs in a black market?
Shortage causes a black market
Tenants want to pay more than ceiling, and actually pay above equilibrium price
Consumers capture larger area, now all the way up to black market price
