séance 5

Question 1

what is the definition of a market thats is in equilibrium?

Answer 1

A market is in equilibrium when the quantity demanded equals the quantity supplied at the market price

Question 2

on the graph, equilibrium is…

Answer 2

the crossing point of the demand and supply curve

Question 3

what is the market clearing condition?

Answer 3

Qs=Qd : no excess supply and no excess demand = market cleared

Question 4

competition between consumers make the price…

Answer 4

go up

Question 5

competition between producers makes the price..

Answer 5

go down

Question 6

if P<p></p>

Answer 6

excess demand because customers are able to buy more Qd(P)>Q*. producers are less inclined to produce than at the equilibrium price Qs(d)

Question 7

what happens to the price when there is excess demand?

Answer 7

excess demand=customers left out of the market. customers compete with each other which makes the price go up until P=P* (biding)

Question 8

if P>P*, what happens with customers and producers? do we have excess supply or demand?

Answer 8

excess supply because there is too much of a good that is lying around not being bought. producers are willing to accept a lower price to sell the. producers compete with each other by offering discount to make P do down until P=P*

Question 9

what is the only thing that can induce a mvmt along the demand curve of a good?

Answer 9

a change in the price of that specific good

Question 10

give examples of factors affecting demand

Answer 10

• price of other goods

- revenue (income)

Question 11

give examples of factors affecting supply

Answer 11

• input prices (wages, raw material)

- technology (technology improvements lead to lower production costs)

Question 12

what are the 3 steps to analyze shocks?

Answer 12

1. what is the impact of the shock on the demand curve
2. what is the impact of the shock on the supply curve
3. using step 1&2, determine how market equilibrium is affected

Question 13

what does the demand reflects for consumers?

Answer 13

demand reflects the marginal valuation that consumers attach to a good

Question 14

what does the supply reflects for producers?

Answer 14

supply reflects the marginal costs that producer attach to a good

Question 15

what happens when there is a negative demand shock?

Answer 15

shift of the demand curve to the left: the equilibrium qty and the price go down

Question 16

what happens when there is a positive demand shock?

Answer 16

shift of the demand curve to the right: the equilibrium qty and the price go up

Question 17

what happens when there is a negative supply shock?

Answer 17

upward shit of the supply curve: equilibrium qty decreases and price increases

Question 18

what happens when there is a positive supply shock?

Answer 18

downward shit of the supply curve: equilibrium qty increases and price decreases

Question 19

what happens when there is combined shock (shift in S and D simultaneously)

Answer 19

When considering both a price and supply change, you can expect that the direction of either the price or the quantity change will be ambiguous (you can see it by the magnitude change in the curves you draw).if the graphs disagree in one dimension (price or qty), then the overall change is ambiguous and cannot be determined without quantitative information

Question 20

considering a regulatory shock of a price cap/ceiling going down, what happens to the demand and supply?

Answer 20

excess (surplus) demand and shortages in supply

Question 21

considering a regulatory shock of a price cap/ceiling going up, what happens to the demand and supply?

Answer 21

excess (surplus) supply and shortages in demand

Question 22

considering a regulatory shock of a price floor of a wage above minimum wage what happens to the demand?

Answer 22

excess (surplus) supply of work and shortages in demand of hiring = unemployment

Question 23

what does welfare represents?

Answer 23

wellbeing, satisfaction

Question 24

in equation, what is welfare equal to?

Answer 24

welfare = consumer surplus + producer surplus

Question 25

what is the definition of consumer surplus?

Answer 25

difference between willingess to pay and the price paid

Question 26

how to compute CS?

Answer 26

CS = total valuation - expenses

Question 27

graphically, what area consists of the CS of a population?

Answer 27

it is the area below the demand curve and above the price line, up to the qty traded

Question 28

a price fall increases or decreases CS?

Answer 28

a price fall increases CS

Question 29

when price rises, are ppl with elastic or inelastic demand more affected?

Answer 29

ppl with inelastic demand are more affected because they are somewhat captive and keep buying the good even though it rises. ppl with elastic demand are less affected by the price increase because their demand is more sensitive to changes in price

Question 30

when price rises, what can we say about CS of ppl with elastic and inelastic demand?

Answer 30

- if demand is elastic, small decrease in CS | - if demand is inelastic, large decrease in CS

Question 31

what is the definition of producer surplus?

Answer 31

difference between the selling price of the product and the cost of producing each unit (MC)

Question 32

how to compute PS?

Answer 32

PS = total selling price - total marginal cost

Question 33

graphically, what is the area representing the PS of an industry?

Answer 33

the PS of the industry is the area above the supply curve and below the price line, up to the qty traded

Question 34

a price reduction increases or decreases PS?

Answer 34

a price reduction will decrease the PS

Question 35

when market is in equilibrium, what can we say about welfare?

Answer 35

it is maximized: it is the point of optimal allocation. there is no other way to improve the situation

Question 36

what can we say about welfare when Q

Answer 36

welfare is not maximized because of the deadweight loss. we say there are wasted opportunities due to Q*-Q untraded units

Question 37

what can we say about welfare when Q>Q*?

Answer 37

welfare is not maximized beacause of the deadweight loss. we say there are wasted resources because the units traded above Q* cost more to make than the valuation consumers attach to them

Question 38

what can we say about the competitive equilibrium?

Answer 38

The competitive equilibrium (P*,Q*) in which everybody is acting is their self interest : it maximizes welfare. It is ’’pareto efficient’’: no wasted resources and no wasted opportunities. It allocates goods to whoever values them the most