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What are the differences between consumer surplus and producer surplus?
Consumer surplus is the benefit to buyers; producer surplus is the benefit to sellers. They are on opposite sides of the equilibrium price.
What are the differences between a price ceiling and a price floor?
A price ceiling is a maximum price; a price floor is a minimum price. Ceilings cause shortages; floors cause surpluses.
What are the differences between a shortage and a surplus?
A shortage is when demand exceeds supply; a surplus is when supply exceeds demand. Shortages put upward pressure on price; surpluses put downward pressure.
What are the differences between individual and total consumer surplus?
Individual consumer surplus is for one buyer; total consumer surplus is the sum of all individual surpluses.
What are the differences between individual and total producer surplus?
Individual producer surplus is for one seller; total producer surplus is the sum of all individual surpluses.
Compare and contrast the effects of a tax and a subsidy on market equilibrium.
A tax increases price and decreases quantity; a subsidy decreases price and increases quantity. Both create a wedge between buyer and seller prices.
Compare and contrast the effects of a quota and a tariff on trade.
Both restrict trade, but a tariff generates government revenue while a quota does not (revenue goes to quota holders).
What are the differences between allocative and productive efficiency?
Allocative efficiency means resources are used where they are most valued by society. Productive efficiency means goods are produced at the lowest possible cost.
What are the differences between positive and normative economics?
Positive economics is about facts and cause-and-effect relationships. Normative economics is about value judgments and what *should* be.
What are the differences between microeconomics and macroeconomics?
Microeconomics studies individual markets and decisions. Macroeconomics studies the economy as a whole.
How does market equilibrium apply to the price of gasoline?
The price of gasoline is determined by the intersection of supply and demand, reflecting equilibrium.
How does consumer surplus apply to buying a discounted item?
If you buy an item on sale, your consumer surplus is the difference between what you would have paid and the sale price.
How does producer surplus apply to a farmer selling crops?
If a farmer sells crops for more than their minimum acceptable price, they gain producer surplus.
How does consumer surplus change when the price of a product increases?
Consumer surplus decreases because the difference between willingness to pay and the market price shrinks.
How does producer surplus change when the price of a product decreases?
Producer surplus decreases because the difference between the market price and minimum acceptable price shrinks.
How does market equilibrium relate to allocative efficiency?
Market equilibrium leads to allocative efficiency because resources are allocated to their most valued uses, maximizing total surplus.
How does a shortage affect consumer and producer surplus?
A shortage typically reduces consumer surplus and can increase producer surplus if prices rise, but it also creates deadweight loss.
How does a surplus affect consumer and producer surplus?
A surplus typically increases consumer surplus (due to lower prices) and reduces producer surplus, also creating deadweight loss.
How does consumer surplus relate to the demand curve?
Consumer surplus is the area below the demand curve and above the market price, representing the total benefit consumers receive.
How does producer surplus relate to the supply curve?
Producer surplus is the area above the supply curve and below the market price, representing the total benefit producers receive.
What is the impact of a price ceiling on consumer surplus?
It may increase or decrease consumer surplus, but it generally leads to a shortage and deadweight loss.
What is the impact of a price floor on producer surplus?
It may increase or decrease producer surplus, but it generally leads to a surplus and deadweight loss.
What is the impact of a tax on the market equilibrium?
A tax shifts the supply curve upward, leading to a higher price for consumers and a lower price for producers, and reduces quantity.
What is the impact of a subsidy on the market equilibrium?
A subsidy shifts the supply curve downward, leading to a lower price for consumers and a higher price for producers, and increases quantity.
What is the impact of rent control on consumer surplus in the long run?
Rent control, a type of price ceiling, typically reduces consumer surplus in the long run due to decreased availability of housing.
What is the impact of agricultural price supports on producer surplus?
Agricultural price supports, a type of price floor, typically increase producer surplus but lead to surpluses and government intervention.
How does a quota affect consumer surplus?
A quota restricts quantity, leading to higher prices and reduced consumer surplus.
How does a tariff affect producer surplus?
A tariff increases the price of imported goods, potentially increasing producer surplus for domestic producers.
What is the effect of a binding price ceiling on the quantity transacted?
A binding price ceiling reduces the quantity transacted because it creates a shortage.
What is the effect of a binding price floor on the quantity transacted?
A binding price floor reduces the quantity transacted because it creates a surplus.