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Flashcards in Chapter 5 - Markets in action Deck (38)
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what is partial-equilibrium analysis

examination of a single market in isolation that ignores feedback effects from other markets


What economists use when they study all markets together

general-equilibrium analysis


Situations where gvt may think about changing equilbrium price (3 ex.)

1) Increase in prices due to natural disaster
2) Minimum wages
3) Shortage of a necessity (like water)


what happens when price set above equilibrium

excess supply (markets don't clear)


what happens when price set below equilibrium

excess demand (supply shortage)


At a fix price what determines quantity

lesser of quantity demanded and supply (the lowest between these two)


Name of price fixed above equilibrium

price floor


Name of price fixed below equilibrium

price ceiling


Price floor in employment/wage model name

minimum wage


Consequence of minimum wage on firms and employees

Firms are worse off. Have to pay a higher wage than before
Employees that KEEP THE JOB are better off
Employees that are unemployed are worse off (harder to find job)


3 main objectives of imposing a price ceiling (for the gvt)

1) Restrict production
2) Keep specific prices down
3) Satisfy (normative) notions of equity


Black market definition

Situation where goods are sold at prices that violate a legal price control -> this may thwart the objectives of the gvt


What is a binding rent control

Price ceiling imposed by gvt upon landlords on renting price


Ex of 3 consequences of binding rent control

1) Housing shortage (excess demand)
2) Alternative allocation schemes in black market
3) Illegal schemes like ''key money'' or others


Consequence of binding rent control on tenants and landlords

Landlords lose
Tenants in rent-controllend apartment win
Potential tenants suffer


Short run and long run effects of rent controls

Perfectly inelastic (vertical) curve for supply in short run. In long run, supply curve becomes more elastic


2 Alternatives for housing shortages for the gvt

1) Subsidizing (financially support) housing production or producing public housing directly
2) Provide lower-income households with income assistance


Something to remember about all gvt policies

Always involve a resource cost


When using the concept of market efficiency, demand is represented as _________ and supply is represented as _______

value. cost.


Price corresponding to a sepcific qt demanded : what does it mean

Highest price consumers are willing to pay (as shown by height of the demand curve)


Price corresponding to a specific qt supplied : what does it mean

Lowest price producers are willing to accept


What demande curve means from POV of market efficiency

for each unit, price on demand curve shows value consumers get from buying it


What supply curve means from POV of market efficiency

for each unit, price on supply curve shows additional cost for producer of producing that extra unit


Economic surplus def

Difference between value given to a product and how much is paid for it


Economic surplus synonym/other way of defining it

satisfaction you get from a product


When do we stop buying/what determines equilibrium price

We stop buying at point where willingness to pay = price


What is to remember about consumers and the demand curve (in market efficiency concept)

For all prices on demande curve, a consumer is willing to pay this price


T/F consumers that are willing to pay a price that is lower than eq. price won't get the product

F : There will be producers that are willing to sell it at the price they are willing to pay


Market efficiency and supply curve : trick for understanding producer surplus

Each unit supplied comes from a producer that was willing to sell it at this price. Producer surplus (total) is sum of all Eq producers surplus


Market efficiency and demand curve : trick for understanding consumer surplus

Each unit bought is bought by a consumer that was willing to pay this price for it. Consumer surplus (total) is sum of all Eq consumers surplus