Session 3: Exchange and markets Flashcards Preview

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Flashcards in Session 3: Exchange and markets Deck (13):
1

In the traditional supply/demand graph, what is the point at which supply and demand intersect

Equilibrium

2

In the traditional supply/demand graph, what is the area under demand/above price?

Buyer surplus

3

In the traditional supply/demand graph, what is the area under demand/below price

Supplier surplus

4

In the traditional supply/demand graph, what does surplus represent?

Gains from trade

5

In the traditional supply/demand graph, where is the maximum surplus?

Equilibrium

6

When the market is in disequilibrium, and price is above the equilibrium price, what happens?

Quantity demanded falls

Deadweight loss occurs from right of new quantity to old equilibrium point

From 0 to new quantity, and old price to new price becomes producer/supplier surplus

7

What happens when activity occurs in upper left quadrant of supply/demand graph?

Price up, Quantity down

Supply decreased

8

What happens when activity occurs in upper right quadrant of supply/demand graph?

Price up, Quantity up

Demand increased

9

What happens when activity occurs in lower left quadrant of supply/demand graph?

Price down, Quantity down

Demand decreased

10

What happens when activity occurs in lower right quadrant of supply/demand graph?

Price down, Quantity up

Supply increased

11

What happens when a price floor occurs?

Price is set above equilibrium price

At new price, quantity demanded is less than quantity supplied (surplus)

Producers capture area above old equilibrium price and below new price

Area between new quantity demanded and old equilibrium price is deadweight loss

Willingness to buy decreases
Willingness to sell increases

12

What happens when a price ceiling occurs?

Price is set below equilibrium price

At new price, quantity demanded is more than quantity supplied (shortage)

Consumers capture area above new price and old equilibrium price

Area between new quantity demanded and old equilibrium price is deadweight loss

Willingness to buy increases
Willingness to sell decreases

13

What occurs in a black market?

Shortage causes a black market

Tenants want to pay more than ceiling, and actually pay above equilibrium price

Consumers capture larger area, now all the way up to black market price