Demand and Supply Flashcards
(30 cards)
What are the two types of markets considered for Supply and Demand?
Services and Finished goods & Factor of Production
What is an intermediate good?
They are used in the production of final goods.
What is the Demand function?
Q= f(Px, I, Py)
Px= price of good X
I= Measure of income
Py=Price of related goods
What is equation for graphing demand?
Q=P(x)+B, graph standard. Price on Y, Quantity on X
Law of Demand States
That demand usually increases at lower prices.
Supply is determined by:
The selling prices and the cost of the components needed for manufacturing.
What is equilibrium price and quantity? When is it stable?
The cross section on the graph where the quantity supplied and the quantity demanded are equal. Stability is achieved when there are forces present that drive prices back to equilibrium.
What is a common value auction?
The value is the same to everyone but the bidders do not know the value at the time of the auction. Bidders must estimate value. Winning bidder could overestimate and have losses.
What is an ascending price (english) auction?
Bidders can bid higher than the previous high bid, and the bidder that first offers the highest bid wins the item.
What is sealed bid auction?
Each bidder gets one bid, unknown to others. Highest bid wins. Reservation prices are also given for the most the bidder would pay.
What is a second price sealed bid (Vickrey) auction?
Highest bidder wins, but pays the second highest bid price.
What is a dutch auction?
Price starts high then get lower until a bidder agrees to pay it.
Explain consumer surplus. Where is it located on a graph?
The difference between the total value to consumers of the units of a good that they buy and total amount they must pay for those units.
It is the area under the demand curve and across from the price level.
What is producer surplus?
Is the excess of the market price above the opportunity cost of production OR Total Revenue - Variable cost of producing those units. Calculate by taking height and width/2 (triangle area).
What is the efficient quantity for a good?
It is the quantity of production that maximizes total consumer surplus and producer surplus (profits). Efficient allocation of resources to maximize total benefit to society. Anything less than this is inefficient.
What are the effects of government regulations for supply and demand?
Leads to Deadweight loss. Not the efficient quantity.
Give an example of a price floor and ceiling.
Minimum Wage and Rent control.
Explain examples of trade restrictions and their effects of Supply and Demand.
Subsidies: Government payments, increases producers, people pay less. Not efficient.
Taxes: Increase prices and decrease the amount sellers receive.
Quotas: production limits, less than efficient.
All lead away from equilibrium where marginal cost=marginal benefit.
What are economics costs and benefits?
Imposed or enjoyed by sellers or buyers that do not factor in the production or consumption decisions.
Ex: Cost - a company that pollutes the ocean that a fisherman works in. Benefit - A new garden developed.
What are public goods and common resources?
Public good are goods and services that are consumed by people regardless of if they paid for them or not. “Free Riders”. Competitive markets will produce less of these.
A common resource is one that anyone can use. Usually are overused and destroyed. Production ends up being far greater than needed.
What is a price ceiling? What do they lead to in the long run? What is a price floor?
A limit to what a seller can charge. If above Equilibrium price, doesn’t matter. There will be a shortage at the ceiling price, excess demand.
Long run: Long lines to make purchases, suppliers engage in discrimination, take bribes to sell at ceiling price, reduce quality level to match ceiling price.
Lower limit - ex. a wage rate.
What is the basic effect of taxes?
Increases prices for buyers, decreases quantity supplied.
What is a statutory incidence and actual incidence for tax? What is the effect on the demand curve of a statutory tax on the buyer?
Statutory - who is legally responsible for the tax. Actual - the party that actually bears the cost of the tax.
Causes a downward shift of the demand curve by the amount of the tax.
What is elasticities effect on the tax burden?
If the demand is less elastic then consumers will bear a higher burden. If supply is less elastic, then suppliers bear a high burden of the tax revenue compared to consumers.
