week 4 (GPT)

Question 1

What is individual supply?

Answer 1

The quantity of a good that a single producer is willing to sell at different prices.

Question 2

What is market supply?

Answer 2

The sum of all individual supply(quanities) curves in the market.

Question 3

What is individual demand?

Answer 3

The quantity of a good that a single consumer is willing to buy at various prices.

Question 4

What is market demand?

Answer 4

The sum of all individual demand curves in the market.

Question 5

What is horizontal summation in economics?

Answer 5

Adding quantities across consumers or producers at each price level to get market curves.

Question 6

What determines market equilibrium?

Answer 6

It is the point where market demand equals market supply.

Question 7

What is the equilibrium price?

Answer 7

The price at which quantity demanded equals quantity supplied.

Question 8

What is excess supply (surplus)?

Answer 8

When quantity supplied exceeds quantity demanded at a given price.

Question 9

What is excess demand (shortage)?

Answer 9

When quantity demanded exceeds quantity supplied at a given price.

Question 10

How does a free market correct a surplus?

Answer 10

Sellers lower prices to attract buyers,
reducing supply and increasing demand.

Question 11

How does a free market correct a shortage?

Answer 11

Buyers bid up prices, encouraging more supply and reducing demand.

Question 12

What is consumer surplus?

Answer 12

The difference between the maximum a consumer is willing to pay and the market price.

Question 13

What is producer surplus?

Answer 13

The difference between the market price and the minimum price a producer would accept.

Question 14

Who receives zero consumer surplus?

Answer 14

The buyer whose reservation price is equal to the market price.

Question 15

What is marginal utility?

Answer 15

The additional benefit gained from consuming one more unit of a good.

Question 16

What is marginal cost?

Answer 16

The cost of producing one additional unit of a good.

Question 17

What is the reservation price for a buyer?

Answer 17

The maximum price the buyer is willing to pay, equal to marginal utility.

Question 18

What is the reservation price for a seller?

Answer 18

The minimum price the seller is willing to accept, equal to marginal cost.

Question 19

What is deadweight loss?

Answer 19

The total surplus lost due to market inefficiency or deviation from equilibrium.

Question 20

What is Pareto efficiency?

Answer 20

A state where no one can be made better off without making someone else worse off.

Question 21

What is a Pareto improving transaction?

Answer 21

A trade that makes at least one party better off without hurting anyone else.

Question 22

What does the invisible hand refer to?

Answer 22

The market’s ability to reach equilibrium naturally through self-interested behavior.

Question 23

What is economic profit?

Answer 23

Profit above the normal opportunity cost of all resources used.

Question 24

What happens in the long run if firms earn economic profit?

Answer 24

New firms enter, increasing supply and lowering price until profits disappear.

Question 25

Why does perfect competition lead to zero economic profit in the long run?

Answer 25

Because easy entry drives down prices to the point where price equals average cost.

Question 26

What is a price ceiling?

Answer 26

A government-imposed maximum price that can be charged for a good or service.

Question 27

When is a price ceiling effective?

Answer 27

When it is set below the equilibrium price.

Question 28

What is the main goal of a price ceiling?

Answer 28

To protect consumers by making essential goods more affordable.

Question 29

What is a common example of a price ceiling?

Answer 29

Rent control or caps on essential goods like milk.

Question 30

What happens to quantity supplied under a price ceiling?

Answer 30

It decreases, leading to a shortage.

Question 31

What is a price floor?

Answer 31

A government-imposed minimum price that must be paid for a good or service.

Question 32

When is a price floor effective?

Answer 32

When it is set above the equilibrium price.

Question 33

What is a common example of a price floor?

Answer 33

Minimum wage laws or agricultural price supports.

Question 34

What happens to quantity demanded under a price floor?

Answer 34

It decreases, causing a surplus.

Question 35

Who benefits from a binding price ceiling?

Answer 35

Consumers who are still able to purchase the good at the lower price.

Question 36

Who loses from a binding price ceiling?

Answer 36

Consumers unable to purchase the good and producers earning lower revenues.

Question 37

What is deadweight loss in the context of price ceilings?

Answer 37

The lost economic surplus when output is restricted below the efficient equilibrium.

Question 38

Who benefits from a price floor?

Answer 38

Producers who can still sell at the higher price.

Question 39

Who loses from a price floor?

Answer 39

Consumers who pay more and producers unable to sell due to surplus.

Question 40

What is deadweight loss in the context of price floors?

Answer 40

Lost surplus from reduced transactions between buyers and sellers.

Question 41

What is a better alternative to price ceilings or floors to help the poor?

Answer 41

Direct transfers like subsidies, pensions, or welfare payments.

Question 42

What is taxation in economic terms?

Answer 42

A government-imposed fee that affects market prices and output.

Question 43

What is an indirect tax?

Answer 43

A tax levied on goods or services rather than income, like GST or excise tax.

Question 44

Who shares the burden of an indirect tax?

Answer 44

Both consumers and producers depending on elasticity.

Question 45

How does a tax affect supply?

Answer 45

It shifts the supply curve upward (or left), increasing prices and reducing quantity.

Question 46

What is tax incidence?

Answer 46

The distribution of the tax burden between consumers and producers.

Question 47

What determines who bears more of the tax burden?

Answer 47

Relative price elasticity of demand and supply.

Question 48

When does the consumer bear more of the tax burden?

Answer 48

When demand is inelastic relative to supply.

Question 49

When does the producer bear more of the tax burden?

Answer 49

When supply is inelastic relative to demand.

Question 50

What is deadweight loss from a tax?

Answer 50

The loss of total surplus due to reduced market transactions caused by taxation.

Question 51

Why do governments prefer taxing inelastic goods?

Answer 51

Because it results in less deadweight loss and more stable revenue.