Market Equilibrium and Comparative Statics

Question 1

Market Equilibrium Condition

Answer 1

Equilibrium is achieved at the price at which quantities demanded and supplied are equal.

Question 2

Increases in demand lead to movements along the _____ curve, ________ EQ price, & ________ EQ quantity

Answer 2

supply, increases, increases

Question 3

Increases in supply leads to movements along the ______ curve, _______ Eq quantity & ______ Eq price

Answer 3

demand, decreases, increases

Question 4

Movement from point to point along the curve

Answer 4

A change in quantity demanded and quantity supplied is caused by a change in price

Question 5

Shift the curve

Answer 5

a change in demand is caused by a change in the non-price determinant

Question 6

Determinants of demand (shift the curve)

Answer 6

• change in income (normal or inferior good)
• change in tastes and preferences
• the price of a related good (complement or substitute)
• change in future expectations
• size of population

Question 7

Determinants of Supply (shifts the curve)

Answer 7

• change in price of inputs
• change in weather
• change in technology
• government policies
• size of population

Question 8

Future Market

Answer 8

agree on contract today to deliver a certain quantity at a given price in the future

Question 9

Comparative Statics

Question 10

Effects of Taxes

Question 11

Economic Incidence of a tax

Answer 11

Economic incidence of a tax refers to the individual or group of individuals who ultimately bear the actual cost of the tax.

Question 12

Effects of a quota

Answer 12

1) Price changes
2) Changes in production and employment
3) Changes in trade patterns
4) Changes in consumer welfare

Question 13

Statutory Incidence

Answer 13

Statutory incidence refers to the individual or group of individuals who are responsible for physically remitting a particular tax to the government.

Question 14

Tax incidence

Answer 14

the actual division of the burden of a tax between buyers and sellers in a market is called

Question 15

to determine an optimal consumption bundle we need to know only

Answer 15

prices, income, and marginal utility

Question 16

As tax per unit raises price by less than $1 as long as the demand curve is not _____

Answer 16

Perfectly inelastic

Question 17

Equation of amount of tax that firms pay

Answer 17

[P*-(P1-1)]Q1

Question 18

A per unit tax increases the equation price by less than the amount of the tax and creates a _______

Answer 18

deadweight loss

Question 19

Who pays the tax depends on the _______. Lower _____ lead to consumers paying a larger fraction

Answer 19

elasticity of demand; elasticities
(industry with fixed supply curve is one where inputs cant escape and will bear entire tax)
(industry with perfectly inelastic supply curve is where inputs have equal opportunities elsewhere and consumers will bear all of the tax)

Question 20

Formula for elasticities for effects of a tax on the final price to consumers

Answer 20

E8 <—- elasticity of supply/(ES + 1Ed1 <– absoulte value of elasticity of demand)