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Economic A Level > Supply and Demand > Flashcards

Supply and Demand Flashcards

1
Q

How are prices determined in a market

A

Free from government intervention prices are determined by the interaction of market forces at the point where demand equals supply

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2
Q

What is equilibrium

A

The point where demand equals supply

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3
Q

What is equilibrium also know as

A

Market clearing price

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4
Q

What are the two types of disequilibirum

A

Surpluses
Shortages

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5
Q

What are shortages

A

When there is excess demand and prices are below the equilibrium

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6
Q

What are surpluses

A

When there is excess supply and the price is above equilbrium

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7
Q

What are the 4 supply and demand diagrams

A

Increase in demand
Increase in supply
Decrease in demand
Decrease in supply

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8
Q

What happens when there is an increase in demand

A

Increase in price and quantity traded

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9
Q

What happens when there is an increase in supply

A

Decrease in price
Increase in quantity traded

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10
Q

What happens when there is a decrease in demand

A

Decrease in price
Decrease in quantity traded

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11
Q

What would happen when there is a decrease in supply

A

Increase in price
Decrease in quantity demanded

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12
Q

What is producer surplus

A

It is the difference between the minimum price a producer would be willing and able to accept to supply a good/service and the actual market price they paid

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13
Q

How does a tax on the producer affect supply

A

The tax will raise the cost of production and make firms less willing and able so supply decreases

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14
Q

What is a specific or unit tax

A

The tax is the same regardless of the price of value of the product

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15
Q

What is a percentage or ad valorem tax

A

A tax based on the value of a good

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16
Q

What happens to supply after a subsidy

A

It increases

17
Q

What are the two broad types of taxes

A

Indirect taxes
Direct Taxes

18
Q

What are indirect taxes

A

They are taxes on production that are payable by firms

19
Q

What are direct taxes

A

They alter the disposble income of buyers and will shift the demand curve

20
Q

What is the incidence of a tax or subsidy

A

It is how much of the price change falls on the consumer
Who has the burden of the tax or subsidy

21
Q

What happens to consumer incidence when demand is perfectly inelastic

A

The whole tax falls on the consumer

22
Q

What happens when demand is perfectly elastic and a tax is applied

A

The producer has all the tax and the price doesn’t change

23
Q

What does the incidence of a tax depend on

A

The elasticity of demand
The more inelastic the demand is, the higher the producer has to pay

24
Q

What is the equation for tax revenue collected by the government

A

tax rate x number of units sold

25
Q

What can the hypothesis of diminishing marginal utility be used to do

A

Explain why a demand cure is downward sloping

Economic A Level (22 decks)

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