Untitled Flashcards Set

Econ Module 4

• Competitive Market

  • Generates equilibrium price and quantity 

    • It does this by increasing the price depending on whether demand > supply or supply > demand

    • Exmaple: 

      • demand > supply price rises to equilibrium 

      • supply > demand prices falls until it reaches equilibrium

  • A competitive market is efficient, because it

    • Allocate supply to demanders who value them most

    • Allocates demand to suppliers who can produce at lower cost

    • Maximizes total surplus, sum of Consumer Surplus (CS) and Producer Surplus(PS)

  • Consumer surplus

    • Amount of Money a consumer wants to pay - the amount of money they paid for a product

  • Producer surplus

    • Producers price for the product - how much they would like to accept

  • Price ceiling (rent control)

    • Established max price

      • Sellers must accept

      • Buyers can pay

    • Not binding

      • No effect

    • Binding

      • Shortage

  • Price floor (minimum wage)

    • Established min price

      • Sellers can charge

      • Buyers must pay

    • Not binding

      • No effect

    • Binding 

      • Surplus

    • Excise Tax 

      • Gets in between buyers and sellers 

      • Buyers pay more: worse off

      • Sellers receive less: worse off

      • Buy-sell less: both worse off

      • Govt. receives revenue: better off 

• ⁃ Cause Dead Weight Loss (DWL) : society worse off [total worse off > total better off]