supply and demand Flashcards
supply curve d
shows units of output that would be produced at a given price
price taker d
buyers and sellers cannot benefit by choosing a different price from the one at which everyone else is transacting
competitive equilibrium d
market in which all buyers and sellers are price takers and supply equals demand
how do firms decide what quantity to produce in a perfectly competitive market
where the horizontal demand curve is tangent to the isoprofit curve
why do firms produce at mc=p
because if mc>p then would make a loss on the last unit,
if mc<p></p>
for a price taking firm the marginal cost curve is the _____ curve
supply
when both buyers and sellers are price takers the equilibrium allocation ______ gains of trade
maximises (maximum surpluses)
the distribution of the total surplus between producers and consumers depends on the ________ of demand and supply
elasticities
in a price taking market the equilibrium allocation is _____ _____
pareto efficient
how do you show long run equilibrium from new firms entering the market on a diagram
mc (supply) shifting to the right on market mc curve,
movement down the firm’s mc curve until the zero economic isoprofit curve (also the average cost curve now) is reached
how do you show the effect of a tax on a supply and demand diagram
new, higher supply curve,
tax is difference between old supply and new
think about what would happen to the producer and consumer surpluses when a tax is imposed
both are reduced,
there is now a rectangle which is the revenue for the government,
there is also a deadweight loss
what is a problem with using taxation as a policy
requires effective mechanism for collection,
simple to administer and difficult to avoid
conditions necessary for perfect competition
large no. of buyers and sellers,
perfect information,
homogeneous products,
