Supply and Demand
the economic term for the willingness and ability of consumers to purchase a good or service at a given price
Demand
What concept measures the responsiveness of quantity demanded to a change in price?
Price elasticity of demand
Draw an Ad valorem tax on a market
Ad valorem tax imposed on a market
When the free market fails to achieve an efficient allocation of resources, what is this called?
Market failure
What is a government payment to producers to encourage production or lower prices?
Subsidy
What happens to the demand curve for normal goods when consumer income increases?
It shifts right
If a good has a PED of 0.8, is its demand considered elastic or inelastic?
Inelastic
Draw a price ceiling on a market and shade new consumer surplus
Price ceiling
What type of externality occurs when the production of a good harms a third party not involved in the transaction?
Negative externality
What type of government-imposed price control sets a maximum legal price?
Price ceiling
What does the law of supply state about the relationship between price and quantity supplied?
Direct relationship
What type of relationship between two goods does a negative Cross-Price Elasticity of Demand (XED) indicate?
Complements
Draw a positive externality of consumption
Positive externality of consumption
What two characteristics define a public good?
Non rivalrous and non excludable
What is the primary purpose of imposing an indirect tax on goods with negative externalities?
To internalize the externality/reduce welfare loss
What is the specific point where the quantity demanded equals the quantity supplied?
Equilibrium
If a firm increases the price of a product with elastic demand, what happens to its total revenue?
Decreases
Draw a tax imposed in a market to solve the problem of an externality of consumption
Tax and positive externality of consumption
What problem arises with public goods because individuals can benefit without paying for them?
What is a potential unintended consequence of setting a price floor above the equilibrium price?
Surplus
If the price of a complement good decreases, what is the immediate impact on the demand for the original good?
Demand increases
What factor primarily explains why Price Elasticity of Supply (PES) tends to be higher in the long run than in the short run?
Time
Draw a subsidy diagram and show how CS changes, PS changes and the area of government spending
Subsidy
What is the specific term for the loss of social welfare due to market inefficiency, often depicted as a triangle on a diagram?
Deadweight loss
What market-based policy allows firms to buy and sell rights to pollute?
Tradable permits