Market Equilibrium and Policy - Econ 2302

When the market is in equilibrium, the price that consumers pay and producers receive:

Balances the marginal benefit and marginal cost of consuming and producing a good or service.

In general, a decrease in price is _____ to consumers.

Beneficial

In order for a price floor to be ______, the price floor must be set above the equilibrium price.

Binding

The change in price or quantity will be indeterminate when:

Both demand and supply change.

Rent control is an example of a price _____.

Ceiling

A maximum legal price at which good, service, or resource can be sold is called a price _____.

Celling

A price floor will:

Change the incentives that both buyers and sellers face.

Nonprice determinant are held ______ for any given demand curve.

Constant

Which of the following statements is true? (these are the correct ones)

- A decrease in demand is a shift to the left. - An increase in demand is a shift to the right.

At the initial level of equilibrium, if a nonprice determinant of supply changes:

- An entirely new supply relationship is created. - The supply curve shifts to the left or right.

Which of the following statements is true?

- An increase in supply is a shift to the right. - A decrease in supply is a shift to the left.

Taxes:

- Changes market outcomes. -Change the prices that buyers and sellers face.

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.

A surplus occurs when:

The quantity of output supplied is greater than the quantity of output demanded at the current market place.

When a good's price changes:

The quantity supplied rises as the price rises.

When a good's price increases:

The quantity supplied rises.

Equilibrium Quantity

The quantity traded when the quantity supplied of a good, service, or resource equals its quantity demanded.

When a nonprice determinant of supply changes:

The relationship between the quantity supplied and the price changes.

When a nonprice determinant of supply changes:

The supply curve shifts to the right or left.

A good will become more affordable when:

The supply curve shifts to the right, causing the price to fall.

The revenue collected from a tax equals:

The tax times the quantity traded.

When the supply curve shifts to the left or right:

There is a change in the nonprice determinant of supply.

The equilibrium price is intermediate when:

There is an increase or decrease in both demand and supply.

The primary reason that governments tax economic activity is:

To generate the revenue needed to pay for services.

When both supply and demand change:

We can always determine its confidence how price or quantity will change, but both.

Equilibrium means that:

We should expect to see the price and the quantity coverage at specific levels.

Consider the markets for jobs. Which of the following statements are true?

Workers are the demanders of jobs, and firms are the suppliers of jobs.

If price was not allowed to adjust, a shortage:

Would persist, and the market would not return to equilibrium.

When a price ceilings are in effect:

Market participants have a strong incentive to work around the laws.

The _____ wage is the most common form of price floor.

Minimum

The lowest wage firms can legally pay employees in the labor market is the _____ wage.

Minimum

A minimum legal price that is not set above the equilibrium price is a _______ price floor.

Non-binding

Other factors remaining constant, when a good's _____ increases, the quantity supplied increases.

Price

Other factors remaining constant, when a good's ______ increase, the quantity supplied increases.

Price

Other things remaining constant, when a good's _____ falls, it quantity supplied falls.

Price

The _____ of a good or service is the primary determinant of the quantity demanded by consumers.

Price

If the _____ were not allowed to adjust, a shortage would persist, and the market would not return to equilibrium.

Prices

When a shortage is eliminated, the market:

Return to an equilibrium here the quantity supplied equals he quantity demanded.

A _____ is usually the product of price controls that does not allow markets to adjust or of unforeseen events that disrupt supply.

Shortage

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

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Shortage

The markets return to an equilibrium when the quantity supplied equals the quantity demanded as market participants respond to rising prices, resulting in an elimination of a ______.

Shortage

When a _____ exists in a competitive market, buyers ant to purchase more of a good or service than is supplied.

Shortage

When a ______ occurs in a competitive market, there an incentive for suppliers to increase the quantity of a good or service supplied to the market.

Shortage

A tax on suppliers shifts the:

Supply curve to the left.

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Surplus

When a _____ is imposed on a market, it affects both the quantity supplied and the quantity demanded.

Tax

When there is a decrease in both demand and supply:

The equilibrium quantity falls, but the change in the equilibrium price is indeterminate.

Minimum wage

The lowest wage firms can be legally pay employees in the labor market.

The minimum wage is:

The lowest wage firms can legally pay employees in the labor market.

Minimum Wage

The lowest wage firms can pay their employees in the labor market.

Increased scarcity and inefficiency will result when:

The market is in disequilibrium.

A price ceiling is:

The maximum legal price at which a good, service, or resource can be sold.

Price Ceiling

A maximum legal price at which a good, service, or resource can be sold.

A binding price ceiling is:

A maximum legal price set below the equilibrium price.

NONbinding Price Ceiling

A maximum legal price that is set ABOVEthe 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.

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 binging.

Price Floor

A minimum legal price at which a good, service, or resource can be sold.

Binding Price Floor

A minimum legal price that is set above the existing equilibrium price. Since the market equilibrium price is lower than the price floor, the floor restricts trade and is said to be binding.

Nonbinding Price Floor

A minimum legal price that is set below the existing equilibrium price. Since market equilibrium price is greater than the price floor, the floor has no effect on the market and is said to be nonbinding.

A characteristic of demand for a good, service, or resource other than its own market price is:

A nonprice determinant of demand.

The market adjusts to a new equilibrium price and quantity when:

A nonprice determinant of supply changes.

Shortage

A situation in which the quantity of output demanded is greater than the quantity of output supplied at the current market price. Also called excess demand.

Surplus

A situation in which the quantity of output supplied is greater than the quantity of output demanded at the current market price. Also called excess supply.

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.

Change in Demand

An increase or decrease in the quantity demanded of a good, service, or resource at every price. Graphically, such changes are represented by a shift of the demand curve. Changes in demand are caused by changes in the nonprice determinants of demand.

Change in Supply

An increase or decrease in the quantity supplied of a good, service, or resource at every price. Graphically, such changes are represented by a shift of the supply curve. Changes in supply are caused by changes in a nonprice determinant of supply.

At equilibrium:

Anyone who wants to buy or sell a unit of the good can do so at the market price.

Shortages:

Are usually the product of price controls.

When a golfer sinks a putt in the cup, it will reach an equilibrium:

At the bottom of the cup.

Theaters do not lower the price for bad movies and raise the price for good ones because:

- Consumers might view a lower price as a signal that the movie is of poor quality. - The movie studio that produced the movie would believe that the price is sending customers negative information about the movie.

A tax on demanders:

- May be paid in addition to the purchase price at the point of sale. - May be included in the purchase price.

Informal labor markets are problematic because:

- No tax revenue are generated via income or employment taxes. - The workers cannot participate in retirement funds or Social Security. - There are few protections from abuse. - The workers are at a significant disadvantage relative to the employers. - There can be no formal contracts to guarantee payment.

Shortages are usually the result of:

- Price controls that do not allow markets to adjust. - Unforeseen events that disrupt supply.

Taxes are generally imposed to:

- Raise revenue to fund government activities. - Discourage people from consuming a particular good or service.

All else equal, when a nonprice determinant of demand changes:

- The demand curve shifts to the left or right. - An entirely new demand relationship is created. - The market adjusts to a new equilibrium price and quantity.

If a nonprice determinant of demand changes:

- The entire demand curve shifts to the left or right. - An entirely new demand relationship is created.

When there is a change in an nonprice determinant of supply:

- The supply curve shifts and there is a change in the quantity demanded. - The supply curve shifts and there is a movement along the demand curve.

When there is a change in a nonprice determinant of supply:

- The supply curve shifts and there is a movement long the demand curve. - The supply curve shifts and there is a change in the quantity demanded.

At the initial level of equilibrium, of a nonprice determinant of supply changes.

- The supply curve shifts to the left or right. - An entirely new supply relationship is created.

When a nonprice determinant of supply changes:

- The supply curve shifts to the left or right. - The market adjusts to a new equilibrium price and quantity. - An entirely new supply relationship is created.

When a binding price ceiling is in effect:

- There is a shortage. - There is a reduction on the prices received by producers. - Market participants have a strong incentive to work around the laws.

When a price ceiling is in effect:

- There is a shortage. - There is a reduction on the prices received y produced. - Market participants have a strong incentive to work around the laws.

A nonprice determinant of demand is:

A characteristic of demand for a good, service, or resource other than its own market price.

Nonprice Determinant of Demand

A characteristic of the demand for a good, service, or resource other than its own market price. A change in a nonprice determinant change the relationship between price and quantity demanded, either increasing or decreasing quantity demanded at every price. Sometimes referred to as non-own-price determinant.

Nonprime 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 changes the relationship between price and quantity supplied, either increasing or decreasing quantity supplied, either increasing or decreasing quantity supplied at every price. Sometimes referred to as non-own-price determinant.

When both demand and supply shift, the direction of change in price or quantity:

Depends on the relative magnitudes of the change in demand and supply.

A decrease in quantity is _____ to consumers.

Detrimentave

The market-clearing price is the same as the _____ price.

Equilibrium

The quantity traded with the quantity supplied of a good, service, or resource equals the quantity demanded is the ______ quantity.

Equilibrium

When a shortage is eliminated, the market returns to a(n) _____ where the quantity supplied equals the quantity demanded.

Equilibrium

When the quantity supplied of a good, service, or resource equals the quantity demanded, this quantity traded is known as the:

Equilibrium quantity.

An _____ tax is a tax on a good or service that depends on the units sold, not the price of the good or service.

Excise

An _____ tax is a tax on good or service that depends on the units sol, not the price of the good or service.

Excise

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

A price fixed above equilibrium, or a price _____, will change the incentives that both buyers and sellers face.

Floor

A price fixed above equilibrium, or a price ______, will change the incentives that buyers and sellers face.

Floor

The nonprice determinants or other factors that affect demand are:

Held constant for any given demand curve.

The nonprice determinants or other factors that affect supply are:

Held constant for any given supply curve.

Consider the market for labor, not jobs. Which of the following statements is true?

Households are on the supply side, and firms re on the demand side.

The role of government in market economies includes all the following except:

Identifying new markets.

A tax:

Increase the cost of goods sold.

The lack of equilibrium results in:

Increased scarcity and inefficiency in the production of a good or service.