Surplus and Shortage

A shift of one curve causes what?

A movement along the other curve to a new equilibrium point

A surplus on a market should not be confused with what?

consumer or producer surplus

What is "in balance" at Equilibrium?

forces of supply and demand because there is no reason for price or quantity to change

What do Subsidies do?

increase the quantity produced, lower prices for buyers and increase seller prices

What is Individual producer surplus?

the difference between the market price and the minimum price at which a producer would be willing to sell a product

What is an Equilibrium Point?

the point in a market at which supply and demand intersect and where the quantity demanded is equal to the quantity supplied

A shortage occurs when?

the quantity demanded is greater than the quantity supplied at current price

Suppose Anna is willing to sell one skirt for $5.00, a second skirt for $10.00, a third skirt for $16.00, a forth skirt for $25.00 and the market price is $20.00. Is Anna's producer surplus $15, $20, $22 or $29

$29 20-5=15 20-10=10 20-16=4 15+10+4=$29

You are willing to sell a car for $10,000 and your market price is $15,000, what is your producer surplus?

$5,000

Forces of surplus and shortage guarantee that?

All other prices are temporary

Assuming that, seller are free to sell their products at any price when?

All possible Price-Quantity combinations are unstable except at equilibrium

What is a Market?

An arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged

Why is the Price System important?

Because it is mechanism for distributing scarce goods and services

What is Total consumer surplus measured by?

By calculating the deference between the maximum willingness to pay and the actual price for each consumer, and then total those differences

What is consumer surplus measured in?

Dollar terms

How to calculate Total consumer surplus?

Height x Base divided by 2

To understand the concept of market efficiency economists use what?

The area between the market price and the demand and supply curves to measure gains and losses from the market transaction for consumers and producers

When are competitive markets efficient?

When they maximize the sum of consumer and producer surplus

If Tom is willing to pay for an ice cream cone that is $5.00 and the market equilibrium price is $2.00, what is Tom's consumer surplus?

$3.00 $3.00=$5.00-$2.00

If a consumer is willing to pay $1000 and the market price for a SuperBowl ticket is $480, what is the consumer surplus?

$520 $520=$1000-$480

If Sam is willing to pay $50 for one good X, $30 for a second, $20 for a third, $8 for a fourth and the market price is $10. Is Sam's consumer surplus $10, $40, $70 or $100

$70

What is Surplus?

A market condition existing at any price where the quantity supplied is greater than the quantity demanded

What is Shortage?

A market condition existing at any price where the quantity supplied is less than the quantity demanded

Why would we prefer a world with all markets in equilibrium?

If all markets are in equilibrium there will be no shortages or surpluses for any good or service and the result is market efficiency

How do we eliminate shortages?

By increasing the price but not eliminating scarcity

What is deadweight loss?

Is the net loss of consumer and producer surplus from underproduction or overproduction of a product

What is Equilibrium Price?

Is the price at the intersection of the market supply and demand curves; at this price, quantity demanded equals the quantity supplied

An increase in Demand or a decrease in Supply will?

Not cause a shortage and it will lead to a new equilibrium with a higher price

A decrease in Demand or an increase in supply will?

Not cause a surplus and it will lead to a new equilibrium with a lower price

A competitive market is in equilibrium when?

Price has moved to a level at which quantity of a good or service demanded equals the quantity of that good or service supplied

Most goods are what?

Scarce-desirable but limited

What do taxes do?

Taxes lead to lower quantities produced, higher prices for buyers and lower effective prices for sellers

Where is Total producer surplus on a graph?

The area above the supply curve and below the equilibrium price

Total consumer surplus is located where on a graph?

The area beneath the demand curve and above the equilibrium

What does consumer surplus reflect?

The consumer's gain from exchange by paying a lower price than what is required to obtain the good

What is Producer Surplus?

The difference between the market price and the minimum price at which a producer is willing and able to sell a particular quantity

What is Consumer Surplus?

The difference between the maximum price consumers are willing to pay for a product and the market price of the product

When all other non-price factors are held constant, which coordinate is the only stable one on the graph?

The equilibrium point

When Quantity demanded exceeds Quantity supplied what happens?

There's Shortage and price increases to equilibrium price

When Quantity supplied exceeds Quantity demanded what happens?

Theres Surplus and price decreases to the equilibrium price

When Quantity demanded equals Quantity supplied what happens?

Theres neither Surplus nor shortage and equilibrium price is established

What is a Price System?

a mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices

What is Equilibrium Quantity?

quantity at the intersection of the market supply and demand curves; during this the quantity demanded equals the quantity supplied