Micro 5-7

A tax imposed on the sellers of a good will raise the

Price paid by buyers and lower the equilibrium quantity

Market power refers to the

ability of market participants to influence price

A price floor will be binding only if it is set

above the equilibrium price

Cross-price elasticity demand implies that

any rise in price above that represented by the demand curve will result in a quantity demanded of zero

Producer surplus is the area

below the price and above the supply curve

A good will have a more inelastic demand, the

broader the definition of the market

When a buyers willingness to pay for a good is equal to the price of the good, the

buyer is indifferent between buying the good and not buying it

A tax on buyers will shift the

demand curve downward by the amount of tax

A tax imposed on the buyers of a good will lower the

effective price received by sellers and lower the equilibrium quantity

A minimum wage that is set below a markets equilibrium wage will

have no impact on employment

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will

increase consumer surplus

Economists say that a market where goods are not consumed by those valuing the goods most highly is

inefficient

An increase in price causes an increase in total revenue when demand is

inelastic

Inefficiency exists in an economy when a good is

not being consumed by buyers who value it most highly

A legal maximum on the price at which a good can be sold is called a

price ceiling

A legal minimum on the price at which a good can be sold is called a

price floor

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls

A tax on sellers will shift the

supply curve upward by the amount of tax

A minimum wage that is set above a markets equilibrium wage will result in an excess

supply of labor, that is, unemployment

For a good that is a necessity, demand

tends to be inelastic

Generally, a firm is more willing and able to increase quantity supplied in response to a price change when

the relevant time period is longer rather than short

Producer surplus directly measures

the well-being of sellers

The study of how the allocation of resources affects economic well-being is called

welfare economics