Demand
This law states that, ceteris paribus, as price rises, quantity demanded falls.
What is the Law of Demand?
This law states that price and quantity supplied have a direct relationship.
What is the Law of Supply?
At this market condition, quantity demanded equals quantity supplied.
What is equilibrium?
A PED coefficient greater than 1 receives this classification.
What is elastic demand?
This elasticity measures how responsive producers are to a change in price.
What is price elasticity of supply (PES)?
A buyer is willing to pay $80 but pays $60. Calculate the buyer's consumer surplus.
What is $20?
A government-established maximum legal price is called this.
What is a price ceiling?
If the world price is below a country's domestic equilibrium price, the country will generally do this after opening to trade.
What is import the good?
If the price of a good changes, consumers move along the existing demand curve, producing this type of change.
What is a change in quantity demanded?
An increase in the price of the good itself causes this on the supply curve.
What is an increase in quantity supplied/movement up the supply curve?
A market price above equilibrium creates this condition.
What is a surplus?
Price increases 20% and quantity demanded decreases 10%. Calculate PED and classify demand.
What is 0.5, inelastic?
Price increases 10% and quantity supplied increases 25%. Calculate and classify PES.
What is 2.5, elastic supply?
A producer is willing to sell a product for $25 but receives $40. Calculate producer surplus.
What is $15?
A binding price ceiling must be located here relative to equilibrium price.
What is below equilibrium price?
At the world price, domestic consumers demand 900 units while domestic producers supply 500. Calculate imports.
What are 400 units?
If restaurant meals are a normal good and consumer income falls, this happens to demand for restaurant meals.
What is a decrease in demand / a leftward shift?
An increase in wages paid to automobile workers causes this change in automobile supply.
What is a decrease in supply / leftward shift?
If there is a shortage in a competitive market, this happens to price.
What is price rises?
Price increases from $40 to $44 and quantity demanded falls from 1,000 to 850. Using the simple percentage-change method, calculate PED.
What is 1.5?
The price of coffee rises 20%, causing quantity demanded for tea to rise 30%. Calculate XED and identify the relationship.
What is +1.5; coffee and tea are substitutes?
Demand intersects the price axis at $70. Equilibrium price is $40 and equilibrium quantity is 200. Calculate consumer surplus.
What is $3,000?
At a price ceiling of $1,200, Qd = 500 apartments and Qs = 350 apartments. Calculate the shortage.
What is 150 apartments?
When an importing country opens to free trade at a world price below its domestic equilibrium price, identify what happens to domestic consumer surplus and domestic producer surplus.
What is consumer surplus increases and producer surplus decreases?
Coffee and tea are substitutes. If the price of coffee rises, this happens to the demand for tea.
What is an increase in demand for tea?
A new production technology significantly lowers firms' production costs. Identify the resulting change in supply.
What is an increase in supply / rightward shift?
Demand increases while supply decreases. Identify the one equilibrium variable that can definitely be determined.
What is equilibrium price increases?
If demand is elastic and a business raises its price, this happens to total revenue.
What is total revenue decreases?
Consumer income rises 10%, causing quantity demanded for Good X to fall 5%. Calculate YED and classify Good X.
What is −0.5; Good X is an inferior good?
A market has consumer surplus of $8,000 and producer surplus of $6,000. Calculate total economic surplus.
What is $14,000?
A binding price floor creates this market condition.
What is a surplus?
A country imposes a $20 tariff. After the tariff, domestic consumers demand 800 units and domestic producers supply 500. Calculate imports and tariff revenue.
What are 300 imports and $6,000 in tariff revenue?
Smartphones and phone cases are complements. If smartphone prices decrease, identify what happens in the market for phone cases.
What is an increase in demand for phone cases, causing equilibrium price and quantity to rise?
Producers expect the price of a storable product to be substantially higher next month. Identify the likely change in current supply and explain why.
What is a decrease in current supply because producers hold back some output to sell later at the expected higher price?
Demand increases at the same time supply increases. Identify the equilibrium variable that definitely changes and the one that is indeterminate.
What is equilibrium quantity increases, while equilibrium price is indeterminate?
A business increases price by 8%, and quantity demanded decreases by 8%. Classify demand and predict the effect on total revenue.
What is unit elastic demand, with total revenue remaining approximately unchanged?
The price of smartphones falls 10%, causing demand for smartphone cases to increase 15%. Calculate XED and identify the relationship.
What is −1.5; smartphones and cases are complements?
A $10 per-unit tax reduces quantity traded from 600 to 400 units. Assuming linear curves, calculate deadweight loss.
What is $1,000?
A $6 per-unit tax causes consumers to pay $4 more than before while producers receive $2 less than before. Identify who bears the greater tax burden and what this suggests about relative elasticity.
What are consumers; demand is relatively more inelastic than supply?
Compared with free trade, identify the effects of an import tariff on domestic price, domestic production, domestic consumption, imports, and total economic surplus.
What are domestic price rises, domestic production rises, domestic consumption falls, imports fall, and total economic surplus falls because of deadweight loss?
FINAL JEOPARDY
Taxes and Tariffs
A country imports a product at a world price of $20. At that price, domestic consumers buy 1,000 units and domestic producers supply 400 units. The government imposes a $5 tariff. At the new domestic price, consumers buy 900 units and domestic producers supply 500 units.
Question: Calculate (1) imports before the tariff, (2) imports after the tariff, (3) government tariff revenue, and (4) the deadweight loss created by the tariff.
Imports Before tariff:
600
Imports After tariff:
400
Tariff revenue:
$2,000
DWL consists of the production and consumption distortion triangles:
$250 + $250 = $500