All Flashcards
What is the Law of Demand?
As prices rise, quantity demanded falls.
What is the Law of Supply?
As prices rise, quantity supplied increases.
Define Price Elasticity of Demand (PED).
Measures how much quantity demanded changes when price changes.
Define Price Elasticity of Supply (PES).
Measures how much quantity supplied changes when price changes.
What is Income Elasticity of Demand?
Measures how quantity demanded changes with changes in income.
What is Cross-Price Elasticity of Demand?
Measures how quantity demanded of one good changes with the price of another.
Define Market Equilibrium.
The price and quantity at which supply and demand curves intersect.
Define Consumer Surplus.
The difference between what consumers are willing to pay and what they actually pay.
Define Producer Surplus.
The difference between what producers are willing to sell for and what they actually receive.
What is a Price Ceiling?
A maximum legal price set by the government.
What is a Price Floor?
A minimum legal price set by the government.
What is a Tariff?
Taxes on imported goods.
What is a Quota?
Limits on the quantity of imported goods.
Define Deadweight Loss.
The loss of total surplus when the market is not at equilibrium.
Analyze a graph showing a rightward shift in the demand curve.
The rightward shift indicates an increase in demand, leading to a higher equilibrium price and quantity.
Analyze a graph showing a leftward shift in the supply curve.
The leftward shift indicates a decrease in supply, leading to a higher equilibrium price and a lower equilibrium quantity.
Analyze a graph showing perfectly inelastic demand.
The demand curve is vertical, indicating that quantity demanded does not change regardless of price.
Analyze a graph showing perfectly elastic supply.
The supply curve is horizontal, indicating that producers are willing to supply any quantity at a given price.
Analyze a graph showing a price ceiling below equilibrium.
The price ceiling creates a shortage, as quantity demanded exceeds quantity supplied at the ceiling price. Deadweight loss is also created.
Analyze a graph showing a price floor above equilibrium.
The price floor creates a surplus, as quantity supplied exceeds quantity demanded at the floor price. Deadweight loss is also created.
Analyze a graph showing the impact of a tariff on imports.
The tariff increases the price of imports, reduces the quantity of imports, increases domestic production, and creates deadweight loss.
Analyze a graph showing consumer and producer surplus at equilibrium.
Consumer surplus is the area below the demand curve and above the equilibrium price. Producer surplus is the area above the supply curve and below the equilibrium price.
Analyze a graph showing deadweight loss due to a tax.
Deadweight loss is represented by the triangle formed due to the reduction in quantity traded because of the tax. It represents lost consumer and producer surplus.
What are the differences between elastic and inelastic demand?
Elastic demand is sensitive to price changes (PED > 1), while inelastic demand is not (PED < 1).
What are the differences between elastic and inelastic supply?
Elastic supply is sensitive to price changes (PES > 1), while inelastic supply is not (PES < 1).
What are the differences between normal and inferior goods?
Demand for normal goods increases with income, while demand for inferior goods decreases with income.
What are the differences between substitute and complement goods?
Substitute goods can be used in place of each other (positive cross-price elasticity), while complement goods are used together (negative cross-price elasticity).
What are the differences between price ceilings and price floors?
Price ceilings are maximum prices set below equilibrium, creating shortages. Price floors are minimum prices set above equilibrium, creating surpluses.
What are the differences between tariffs and quotas?
Tariffs are taxes on imports, while quotas are limits on the quantity of imports.
What are the differences between consumer and producer surplus?
Consumer surplus is the benefit consumers receive from paying less than they're willing to pay, while producer surplus is the benefit producers receive from selling for more than they're willing to sell for.