All Flashcards
What are the differences between consumer surplus and producer surplus?
Consumer surplus is the benefit to buyers; producer surplus is the benefit to sellers. They are on opposite sides of the equilibrium price.
What are the differences between a price ceiling and a price floor?
A price ceiling is a maximum price; a price floor is a minimum price. Ceilings cause shortages; floors cause surpluses.
What are the differences between a shortage and a surplus?
A shortage is when demand exceeds supply; a surplus is when supply exceeds demand. Shortages put upward pressure on price; surpluses put downward pressure.
What are the differences between individual and total consumer surplus?
Individual consumer surplus is for one buyer; total consumer surplus is the sum of all individual surpluses.
What are the differences between individual and total producer surplus?
Individual producer surplus is for one seller; total producer surplus is the sum of all individual surpluses.
Compare and contrast the effects of a tax and a subsidy on market equilibrium.
A tax increases price and decreases quantity; a subsidy decreases price and increases quantity. Both create a wedge between buyer and seller prices.
Compare and contrast the effects of a quota and a tariff on trade.
Both restrict trade, but a tariff generates government revenue while a quota does not (revenue goes to quota holders).
What are the differences between allocative and productive efficiency?
Allocative efficiency means resources are used where they are most valued by society. Productive efficiency means goods are produced at the lowest possible cost.
What are the differences between positive and normative economics?
Positive economics is about facts and cause-and-effect relationships. Normative economics is about value judgments and what should be.
What are the differences between microeconomics and macroeconomics?
Microeconomics studies individual markets and decisions. Macroeconomics studies the economy as a whole.
What is the impact of a price ceiling on consumer surplus?
It may increase or decrease consumer surplus, but it generally leads to a shortage and deadweight loss.
What is the impact of a price floor on producer surplus?
It may increase or decrease producer surplus, but it generally leads to a surplus and deadweight loss.
What is the impact of a tax on the market equilibrium?
A tax shifts the supply curve upward, leading to a higher price for consumers and a lower price for producers, and reduces quantity.
What is the impact of a subsidy on the market equilibrium?
A subsidy shifts the supply curve downward, leading to a lower price for consumers and a higher price for producers, and increases quantity.
What is the impact of rent control on consumer surplus in the long run?
Rent control, a type of price ceiling, typically reduces consumer surplus in the long run due to decreased availability of housing.
What is the impact of agricultural price supports on producer surplus?
Agricultural price supports, a type of price floor, typically increase producer surplus but lead to surpluses and government intervention.
How does a quota affect consumer surplus?
A quota restricts quantity, leading to higher prices and reduced consumer surplus.
How does a tariff affect producer surplus?
A tariff increases the price of imported goods, potentially increasing producer surplus for domestic producers.
What is the effect of a binding price ceiling on the quantity transacted?
A binding price ceiling reduces the quantity transacted because it creates a shortage.
What is the effect of a binding price floor on the quantity transacted?
A binding price floor reduces the quantity transacted because it creates a surplus.
Analyze the graph of market equilibrium. What does the intersection point represent?
The intersection point represents the equilibrium price and quantity where supply equals demand.
Analyze the graph of consumer surplus. What area represents consumer surplus?
The area below the demand curve and above the equilibrium price represents consumer surplus.
Analyze the graph of producer surplus. What area represents producer surplus?
The area above the supply curve and below the equilibrium price represents producer surplus.
In a supply and demand graph, what happens to the equilibrium if demand increases?
The equilibrium price and quantity both increase.
In a supply and demand graph, what happens to the equilibrium if supply decreases?
The equilibrium price increases, and the equilibrium quantity decreases.
How does a price ceiling affect consumer and producer surplus on a graph?
A price ceiling creates a shortage, reducing producer surplus and potentially consumer surplus, and creates deadweight loss.
How does a price floor affect consumer and producer surplus on a graph?
A price floor creates a surplus, reducing consumer surplus and potentially producer surplus, and creates deadweight loss.
What does a shift in the demand curve to the right indicate?
An increase in demand at every price level.
What does a shift in the supply curve to the left indicate?
A decrease in supply at every price level.
On a graph, how is total surplus represented at equilibrium?
Total surplus is represented by the sum of the areas of consumer and producer surplus, maximized at equilibrium.