Market Equilibrium Readings
When a tax is imposed on a product, it affects both the quantity supplied and the quantity demanded.
True
The role of government in market economies includes:
Defining and enforcing property rights Punishing dishonest behavior Enforcing contracts Determining the rules of commerce
Which curve appears to have shifted more?
Demand
When demand shifts left, all else equal, what happens to equilibrium price and quantity? Sketching the graph might help you answer this question.
Equilibrium price and quantity both fall.
What happens after both demand and supply shift rightward. Compared to that initial equilibrium?
Equilibrium price and quantity both rise.
After both shifts occur, now that we have the graph, what can we say happens to equilibrium price and quantity.
Equilibrium price falls and equilibrium quantity rises.
Supply was also increasing, shifting rightward. All else equal, what happens to equilibrium price and quantity when supply shifts to the right.
Equilibrium price falls and equilibrium quantity rises.
A price floor will:
change the incentives that both buyers and sellers face.
Non-price determinants are held ______ for any given supply curve.
constant, fixed, or unchanging
A shortage is sometimes called
excess demand
An $1.01 tax on every pack of cigarettes sold is an example of a(n) _____ tax (one word).
excise
An 18.4 cent tax on every gallon of gasoline sold is an example of a(n) _____ tax (one word).
excise
When a minimum wage results in unemployment:
people may turn to informal markets to provide their labor.
The primary determinant of the quantity demanded by consumers is the:
price of a good or service.
When the _____ of a good changes, the quantity demanded changes.
price or cost
The ________of a good or service is the primary determinant of the quantity demanded by consumers.
price, value, or cost
When a shortage is eliminated:
quantity supplied equals quantity demanded.
To pay for needed services, governments
tax economic activity.
By changing the prices that buyers and sellers face in the market:
taxes change market outcomes.
When the government imposes a new tax (or increases an existing tax),
the amount that consumers pay increases.
Equilibrium means that:
we should expect to see the price and the quantity converge at specific levels.
Which of the following is true of a normal good?
The quantity demanded falls as the price rises.
Using our rule, then, which shift must have been dominant? In other words, which curve must have shifted more?
The rightward shift of supply
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:
the market is in equilibrium.
The most common form of price floor is:
the minimum wage.
When the price of a good, service, or resource decreases,
the quantity supplied decreases.
When the price of a good, service, or resource increases:
the quantity supplied increases.
What kind of single curve shift -- just one curve moving -- could result in equilibrium price and quantity both increasing as we see here?
A rightward shift of the demand curve
The increase in demand you just described causes:
A rightward shift of the demand curve; if this were the only shift, equilibrium price and quantity would both rise.
Let's say we're told that the shift in demand is dominant in this case. Then the overall effect of both shifts would be:
An increase in both equilibrium price and quantity.
Let's think next about the market for donuts. And let's say that two things happen to this market at the same time: Scientists discover that sugar is actually good for you, so that donuts are more popular than ever before, and the minimum wage rises (assuming lots of workers at donut shops made less than the minimum wage before). These two changes will cause two simultaneous effects in the market for donuts. What are they?
An increase in demand and a decrease in supply
Both demand and supply shift happen at the same time. What's their combined effect on equilibrium price.
Both shifters caused equilibrium price to fall, so we can say the overall effect is a decrease in price.
What about quantity? what will these two shift do to equilibrium quantity?
One shifter caused an increase in equilibrium quantity, while the other caused a decrease. We can't comment on the overall effect on quantity; its ambiguous.
And the decrease in supply:
Shifts supply leftward; if this were the only shift, equilibrium price would rise while equilibrium quantity would fall.
What's the overall effect of these shifts in the market for used cars?
The change in equlibrium price is ambiguous but equilibrum quantity falls.
Lets consider a situation where demand decreases and supply increases at the same time.
The demand curve leftward and the supply curve rightward.
An excise tax is a tax on:
a good or service that depends on the units sold.
Shortages:
are usually the product of price controls.
We can determine how price or quantity will change, but not both, when:
both demand and supply change.
When a tax is imposed on a market:
both producers and consumers are affected, no matter who pays the tax.
When a shortage is eliminated, the market returns to a(n) ________ here the quantity supplied equals the quantity demanded.
equilibrium
If the quantity supplied equals the quantity demanded:
equilibrium will stay the same if all else is equal.
A price fixed above equilibrium that changes the incentives that both buyers and sellers face is called price
floor
Incentives faced by both buyers and sellers change in the face of a price
floor, ceiling, control, controls, or floors
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 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 non-price determinants or other factors that affect supply are:
held constant for any given supply curve.
With a binding price floor, the market price is setwhat would occur in a market without price controls.
higher than
The role of government in market economies include all the following except:
identifying new markets.
When a shortage occurs in a competitive market, there is an incentive for suppliers to ___________ (increase/decrease) the quantity of a good or service supplied to the market.
increase or raise
A tax (increases/decreases) _____ the cost of goods sold.
increases or raises
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 or unorganized
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
The _____ wage is the most common form of price floor.
minimum
The lowest wage that firms can legally pay employees in the labor market is the _____ wage.
minimum
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
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.
In the presence of a tax on suppliers
the cost producing the good or service increases.
The minimum wage is:
the lowest wage firms can legally pay employees in the labor market.
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.
