Market Equilibrium and Policy
When a nonprice determinant of supply changes:
the relationship between the quantity supplied and the price changes.
The role of government in market economies include all the following except:
identifying new markets.
When the market is in equilibrium, the price that consumers pay and that producers receive exactly balances the ______ benefit and marginal cost of consuming and producing a good or service.
marginal
Price Floor
A minimum legal price at which a good, service, or resource can be sold.
Assume there is initially a shortage in the market. As market participants respond to rising prices, the market returns to an equilibrium where the quantity supplied equals the quantity demanded, resulting in:
an elimination of a shortage.
When a shortage exists in a competitive market, the price provides incentives for:
buyers to decrease the quantity of a good or service purchased in the market.
Non-price determinants are held ______ for any given supply curve.
constant
When a shortage is eliminated, the market returns to a(n) ______ where the quantity supplied equals the quantity demanded.
equilibrium
The federal minimum wage is example of
price floor
The primary determinant of the quantity demanded by consumers is the:
price of a good or service.
When both demand and supply change, the direction of change in:
price or quantity will depend on the magnitude of the shifts in demand and supply.
The most common form of price floor is:
the minimum wage.
When there is a change in a non-price determinant of supply:
the supply curve shifts and there is a movement along the demand curve.
A good will become more affordable when:
the supply curve shifts to the right - causing the price to fall.
The quantity traded times the tax equals:
the tax revenue from a tax.
A situation in which the quantity of output supplied is greater than the quantity of output demanded at the current market price is called a
surplus
Excise Tax
A tax based on the number of units purchased, not on the price paid for a good or service.
A change in demand is:
an increase or decrease in the quantity demanded at every price.
A maximum legal price at which a good, service, or resource can be sold is called a price
ceiling
A price floor will:
change the incentives that both buyers and sellers face.
A minimum legal price that is set below the market price is called a
non-binding price floor.
A maximum legal price that is not set below the equilibrium price is a(n) _______ price ceiling.
non-binding, nonbinding, or ineffective
Referring to the graph, suppose the demand for bottled water decreases by 400 bottles at each price. What are the new equilibrium price and quantity in this market?
Price = $1.50; Quantity = 300
Referring to the graph, suppose the market price is $1.50. What is the size of the shortage or surplus in this market at $1.50?
Shortage of 400
Consider the market for oranges in the United States. What is the size and type of the disequilibrium found at $4.00?
Surplus of 300 million tons of oranges
A nonbinding price floor is:
a minimum legal price that is not set above the equilibrium price.
When the market is in equilibrium, the price that consumers pay and that producers receive exactly balances the
marginal benefit and marginal cost of consuming and producing a good or service.
When price ceilings are in effect:
market participants have a strong incentive to work around the laws.
The equilibrium price is also known as the:
market-clearing price.
The lowest wage that firms can legally pay employees in the labor market is the ______ wage.
minimum
Increased scarcity and inefficiency will result when:
the market is in disequilibrium.
Consider the market for jobs. Which of the following statements is true?
Workers are the demanders of jobs, and firms are the suppliers of jobs.
A change in the quantity demanded at each price is:
a change in demand.
A nonprice determinant of demand is:
a characteristic of demand for a good, service, or resource other than its own market price.
An increase in supply is:
a shift to the right.
When the market participants of a market that is in disequilibrium respond to rising prices, the market will return to equilibrium, resulting in:
an elimination of a shortage.
A _______ is usually the product of price controls that do not allow markets to adjust to unforeseen events that disrupt supply.
shortage, or surplus
A tax on suppliers shifts the:
supply curve to the left,
To pay needed services, governments often ______ economic activity.
tax
When the government imposes a new tax (or increases an existing tax),
the amount that consumers pay increases.
The relative magnitudes of the changes in demand and supply will determine:
the direction of change in price or quantity when both demand and supply shift.
A good once unaffordable to most people can become an item that almost everyone owns when:
the market supply increases over time.
The lowest wage firms can legally pay employees in the labor market is
the minimum wage
When a tax is placed on a good:
the price paid by consumers rises, but the price received by producers decreases.
When a good or service is taxed in the market:
the quantity traded in the market falls.
The primary reason that governments tax economic activity is:
to generate the revenue needed to pay for services,
When both demand and supply change:
we can always determine with confidence how price or quantity will change - but not both.
Consider the market for jobs. ____ are the demanders of jobs, and _______ are the suppliers of jobs.
workers; firms
Shortage
A situation in which the quantity demanded is greater than the quantity supplied at the current market price. Also called excess demand. Shortage = Qs - Qd < 0
The change in price or quantity will be indeterminate when:
both demand and supply change.
We can determine how price or quantity will change, but not both, when:
both demand and supply change.
When demand increases, equilibrium price and quantity increase. As a result, with other things remaining constant,
consumers benefit because more is available to buy.
A policy designed to ensure that sellers receive a minimum price that is greater than what would be available at the market is a price
floor.
The nonprice determinants or other factors that affect demand are:
held constant for any given demand curve.
The non-price determinants or other factors that affect supply are:
held constant for any given supply curve.
Shortages and surpluses are represented by the:
horizontal distance between a point on the demand curve at a particular price and a point on the supply curve at the same price.
When a _____ exists in a competitive market, buyers want to purchase more of a good or service than is supplied.
shortage
When a shortage exists in a competitive market, the price provides incentives for:
suppliers to increase the quantity of a good or service supplied to the market.
One way to reduce the quantity demanded for cigars would be to impose a ______ on cigars.
tax
By changing the prices that buyers and sellers face in the market:
taxes change market outcomes.
When there is a decrease in both demand and supply:
the equilibrium quantity falls, but the change in the equilibrium price is indeterminate.
A shortage occurs when:
the quantity of output demanded is greater than the quantity of output supplied at the current market price.
A surplus occurs when:
the quantity of output supplied is greater than the quantity of output demanded at the current market price.
When the price of a good, service, or resource decreases,
the quantity supplied decreases.
In equilibrium:
the quantity supplied equals the quantity demanded.
When the price of a good increases:
the quantity supplied rises.
When a good or service is taxed in the market:
the price rises.
If price was not allowed to adjust, a shortage:
would persist, and the market would not return to equilibrium,
If price was not allowed to adjust, a shortage:
would persist, and the market would not return to equilibrium.
The role of government in market economies includes:
•Defining and enforcing property rights •Punishing dishonest behavior •Determining the rules of commerce •Enforcing contracts
The equilibrium price increases and the equilibrium quantity is indeterminate when:
demand increases and supply decreases.
When the government sets the price below market equilibrium, a ______ will result.
shortage
When both demand and supply shift, the direction of change in price or quantity:
depends on the relative magnitudes of the changes in demand and supply.
The market adjusts to a new equilibrium price and quantity when a non-price ______ of supply changes.
determinant
The quantity traded when the quantity supplied of a good, service, or resource equals the quantity demanded is the _____ quantity.
equilibrium
Binding Price Ceiling
A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price ceiling, the ceiling restricts trade and is said to be binding.
Binding Price Floor
A minimum legal price that is set above the existing equilibrium price. Because the market equilibrium price is lower than the price floor, the floor restricts trade and is said to be binding.
Referring to the graph, the equilibrium quantity in this market is
600
Which of the following would shift the supply curve for soft drinks to the left?
A 2 cent per ounce tax on all soft drinks
Which of the following statements is true?
A binding price ceiling will be lower than a nonbinding price ceiling.
Change (Shift) in Supply
A change in the quantity of a good, service, or resource supplied at every price. Graphically, an increase in supply is represented by rightward shift of the supply curve, while a decrease supply is represented by a leftward shift of the supply curve.
Nonprice Determinant (Demand)
A characteristic of the demand for a good, service, or resource other than its own market price. A change in a nonprice determinant of demand changes the relationship between price and quantity demanded, either increasing or decreasing quantity demanded at every price. Sometimes referred to as non-own-price determinant.
Nonprice Determinant (Supply)
A characteristic of the supply of a good, service, or resource other than its own market price. A change in a nonprice determinant of supply changes the relationship between price and quantity supplied, either increasing or decreasing quantity supplied at every price. Sometimes referred to as non-own-price determinant.
Equilibrium Quantity
The quantity traded when the quantity supplied of a good, service, or resource equals its quantity demanded.
Suppose the price of gasoline decreases as a result of a decrease in demand. Assuming everything else remains constant, what is one result of this change?
Consumers benefit from lower prices.
______ results in increased scarcity and inefficiency in the production of a good or service.
Disequilibrium
Consider the market for jobs. Firms demand jobs, and workers supply jobs.
False
Which of the following is a benefit from imposing a tax on a good or service?
The government raises revenue to fund government activities
Equilibrium Price
The price at which the quantity supplied of a good, service, or resource equals the quantity demanded; the price at which the demand and supply curves intersect. Also known as the market- clearing price.
Referring to the graph, if a $6 excise tax is imposed on the market for wine, what happens to the price buyers pay and the price sellers receive?
The price for buyers increases and the price for sellers decreases.
Which of the following is true of a normal good?
The quantity demanded falls as the price rises.
A minimum legal price that is set above the market price is called a
binding price floor.
In order for a price floor to be:
binding, the price floor must be set above the equilibrium price.
Rent control is an example of a price
ceiling
The market-clearing price is the same as the
equilibrium price.
When the quantity supplied of a good, service, or resource equals the quantity demanded, this quantity traded is known as the:
equilibrium quantity.
An 18,4 cent tax on every gallon of gasoline sold is an example of a(n)
excise tax
Incentives faced by both buyers and sellers change in the face of a price
floor, ceiling, or control
A tax _______ the cost of goods sold.
increases
A tax:
increases the price of goods sold.
When a minimum wage results in unemployment, people may turn to ______ markets to provide their labor.
informal
When a minimum wage results in unemployment:
people may turn to informal markets to provide their labor.
If ______ were not allowed to adjust, a shortage would persist, and the market would not return to equilibrium.
prices
A change in a nonprice determinant of supply will:
result in a shift of the supply curve.
When a shortage is eliminated, the market:
returns to an equilibrium where the quantity supplied equals the quantity demanded.
Price floors are designed to make sure that:
sellers receive a minimum price that is greater than what would be available at the market equilibrium.
A situation in which the quantity of output demanded is greater than the quantity of output supplied at the current market price is called a
shortage
Suppliers have an incentive to increase quantity supplied when there is a ______ in a competitive market.
shortage
Nonbinding Price Floor
A minimum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price floor, the floor has no effect on the market and is said to be nonbinding.
Price Ceiling
A maximum legal price at which a good, service, or resource can be sold.
A characteristic of demand for a good, service, or resource other than its own market price is:
a nonprice determinant of demand.
Change (Shift) in Demand
change in the quantity of a good, service, or resource demanded at every price. Graphically, an increase in demand is represented by a rightward shift of the demand curve, while a decrease in demand is represented by a leftward shift of the demand curve.
Non-price determinants are held _______ for any given demand curve.
constant, fixed, non-changing, static, stable, steady, unchanging, or same
A price floor is:
a minimum legal price at which a good, service, or resource can be sold.
Nonbinding Price Ceiling
A maximum legal price that is set above the existing equilibrium price. Because the market equilibrium price is lower than the price ceiling, the ceiling has no effect on the market and is said to be nonbinding.
Surplus
A situation in which the quantity supplied is greater than the quantity demanded at the current market price. Also called excess supply. Surplus = Qs - Qd >0
Shortages cannot push the market to an equilibrium in the presence of:
price controls.
Minimum Wage
The lowest wage firms can legally pay employees in the labor market.
Which of the following occurs when the price of a good increases?
There is an increase in the quantity supplied.
The market adjusts to a new equilibrium price and quantity when:
a non-price determinant of supply changes.
The market adjusts to a new equilibrium price and quantity when:
a nonprice determinant of supply changes.
When more or less of a good, service, or resource is supplied at every price, there is:
a shift of the supply curve to the right or left.
The equilibrium price is indeterminate when:
demand and supply change in the same direction.
The nonprice determinants or other factors that affect demand are held constant for any given:
demand curve.
The equilibrium price decreases and the equilibrium quantity is indeterminate when:
demand decreases and supply increases.
If both demand and supply change simultaneously, the effect on either price or quantity will be
indeterminate, unknown, or uncertain
Suppose that at a price of $5, consumers want 50 units, and producers want to sell 75 units. This is:
not an equilibrium, because the quantity supplied does not equal the quantity demanded.
Other things remaining constant, when a good's _______ falls, its quantity supplied falls.
price
An example of a price ceiling is:
rent control.
When the supply curve shifts to the right or left:
there has been a change in the non-price determinants of supply.
Equilibrium means that:
we should expect to see the price and the quantity converge at specific levels.
Suppose demand and supply both shift simultaneously. If we know the direction of the shifts, but not the relative magnitude of the shifts, then
we will know the effect on either the price or the quantity but not both.
Suppose demand and supply both shift simultaneously. If we know the direction of the shifts, but not the relative magnitude of the shifts, then
we will know the effect on elther the price or the quantity but not both.