supply and demand Flashcards
quantity supplied
the amount of a good or service that producers are willing to sell at a specific price
supply schedule
a table that shows how much a good or service producers will supply at different prices
supply curve
shows the relationship between quantity supplied and price
law of supply
all things being equal, there is a positive relationship between the price and quantity of a good
surplus
when quantity supplied > quantity demanded, price is above equilibrium level
shortage
when quantity demanded > quantity supplied, occurs when price is below its equilibrium level
competitive market
a market in which there are many buyers and sellers that are interested in the same good/service, neither buyers or sellers can influence the price or quantity of the goods
demand scedule
a table that shows how much of a good/service consumers are willing to buy at different pricepoints
demand curve
a graph showing the relationship between the quantity demanded and the price of a good
law of demand
the price and quantity demanded of a good/service have an inverse relationship
price controls
legal restrictions on how high or low a market price may go
How can price ceilings lead to shortagas?
forcing the market price to be below the equilibrium price of a good/service can lead to shortages, because there will be less producers willing to provide the good, but more people wanting to buy the good.
Inefficient allocation to consumers
People who want a good badly and are willing to pay a high price for it don’t get it, while people who want a good less urgently and are only willing to pay do get it.
How can price ceilings lead to Inefficient allocation to consumers?
by artificially lowering the price of a good/service, people who need a certain good less urgently enter the market to buy a the good/service. This results in Inefficient allocation to consumers.
How can price ceilings lead to wasted resources
Price shortages lead to missed opportunities because people spend time and resources seeking out goods/services they want instead of working, having fun, etc,
How can price ceilings lead to inefficiently low quality?
Producers sell lower quality goods for lower prices, even though people would rather get higher quality goods for higher prices
How can price ceilings lead to Black markets?
Because people’s needs/wants aren’t being met through the market, people seek illegal ways to get what they want
Inefficient allocation of sales among sellers
Those who would be selling goods at the lowest price are not always able to sell their goods.
How can price floors lead to Inefficiently low quality?
Since the quantity of goods produced is greater then the quantity demanded, the quantity of goods bought and sold is brought below the equilibrium price.
How can price floors lead to Inefficiently High quality
Sellers cannot compete through lower prices, so they must increase the quality of their goods to an extent that is not appreciated by sellers. People in reality would prefer lower prices to higher quality, so there is a missed opportunity.
quantity control/ quota
upper limit on the quantity of some good that can be bought or sold
licences
gives people the right to supply a good/service
demand price
the price at which consumers will demand that quantity
supply price
the price that producers will supply a certain quantity
wedge
the price paid by buyers is higher than that revived by sellers
quota rent
the difference between the demand and supply price
deadweight loss
the loss in gains due to transactions that don’t occur as a result of artificial manipulation of the market
individual consumer surplus
the net gain of an individual buyer from the purchase of the good
(max price they were willing to pay) - (actual price)
total consumer surplus
sum of all the individual consumer surpluses
total surplus
the sum of the consumer and producer surplus
What are indicators of an efficient market?
- there is no way to make some people better off without making some people worse off
reallocation of consumption among consumers
in an efficient market everybody who is willing to buy a certain good/service at a certain price has it. If you were to reallocate who has a certain good/service, you would be taking the product away from someone who really wants it and giving it to someone who wants it less. This will lead to a decrease in total consumer surplus surplus
relocation of sales among sellers
In an efficient market, everybody who is willing to sell a product at a given price is doing so, By changing who sells a certain product. people, the sale is taken away from someone who is really willing to sell the product, to someone who wants to sell the product at a higher price. This results in a reduction of the total supplier surplus.
changes in quantity traded
by manipulating how much of a good/service is traded, total surplus is reduced
progressive tax
tax that rises more in proportion to income, high earners pay a higher percent of their income in taxes than low earners
regressive tax
a tax that rises less than in proportion to income, higher earners pay a lower percentage of their income compared to low earners
proportional tax
a tax that rises in proportion to income, all taxpayers pay the same percentage of their income
excise tax
a tax on sales of each unit of a certain good/service sold.
tax incidence
the distribution of the tax burden
