Untitled Flashcards Set

Competitive Market

A market where many buyers and sellers trade goods or services, with no single participant having the power to influence the prices

Equilibrium

The price and quantity in a market where demand equals supply.

Demand > Supply

Condition in which demand exceeds supply, causing price to rise to equilibrium.

Supply > Demand

Condition in which supply exceeds demand, causing price to fall until it reaches equilibrium.

Efficiency of Competitive Market

A competitive market is efficient, allocating supply to those who value it most and demand to the lowest-cost producers.

Total Surplus

The sum of Consumer Surplus (CS) and Producer Surplus (PS) in a market.

Consumer Surplus (CS)

The difference between the amount a consumer is willing to pay and the amount they actually pay.

Producer Surplus (PS)

The difference between the price a producer receives for a product and the minimum price they would accept.

Price Ceiling

A legally established maximum price that sellers can charge.

Binding Price Ceiling

A price ceiling that causes a shortage in the market.

Not Binding Price Ceiling

A price ceiling that has no effect on the market.

Price Floor

A legally established minimum price that sellers can charge.

Binding Price Floor

A price floor that causes a surplus in the market.

Not Binding Price Floor

A price floor that has no effect on the market.

Excise Tax

A tax that creates a gap between the price buyers pay and the price sellers receive.

Effect of Excise Tax on Buyers

Buyers pay more, making them worse off.

Effect of Excise Tax on Sellers

Sellers receive less, making them worse off.

Effect of Excise Tax on Transactions

Reduces the amount bought and sold, making both buyers and sellers worse off.

Government Revenue from Excise Tax

The government receives revenue, making it better off relative to the tax.

Deadweight Loss (DWL)

Value of trades that could’ve happened but didn’t

Worse Off with Deadweight Loss

Total losses to society exceed total gains resulting from market interventions.

Allocative Efficiency

When resources are allocated in a way that maximizes total surplus.

Market Shortage

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Market Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Rent Control

A form of price ceiling specifically applied to the rental market.