Economics 3.1 (AS 91399) NCEA level 3

Market Equilibrium

The price where the quantity demanded by consumers is the same as the quantity supplied by producers

Disequilibrium

When a shortage or a surplus occurs. (AE does not occur)

Shortage / Excess Demand

When Quantity demanded is greater than quantity suplied

Excess Supply

Quantity supplied is greater than quantity demanded

Allocative Efficency

When the consumer and producer surplus is maximised. The market is operating at Equilibrium

Market demand

Consumer demand for a good or service

dead weight loss

The lost net benefit to society caused by a movement away from the competitive market equilibrium

incidence of a tax

How the burden of a tax is shared among market participants

Incidence of a subsidy

How the benefits of a subsidy is shared among market participants

consumer surplus

The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

producer surplus

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

Quota

A limit placed on the quantities of a product that can be imported or produced

Tariff

A tax on imported goods

subsidy

A government payment that supports a business or market

sales tax

A tax on the dollar value of a good or service being sold

Market demand curve will shift when...

change in Taste, fashion, higher income, advertising, direct tax, changes in substitutes, complements

Market supply curve will shift when...

Change in Costs of production, weather, technology, indirect tax, subsidy, tariff, env, legal, political, cultural factors

A free market is...

One controlled by market forces without government intervention

Relationship between equilibrium and allocative efficiency

Allocative efficiency is maximised at equilibrium

Capital goods are.....

Man-made goods used to produce other goods

Effect of a sales tax

Price increases, quantity decreases

Producers unable to pass tax on when demand is.....

Elastic