What is a buyer’s valuation?
The cutoff below which she wants to trade.
What is a seller’s cost?
The cutoff above which he wants to trade.
What is a buyer’s gain from trade at price P?
What is a seller’s gain from trade at price P?
What is the total gain from trade?
How does the demand curve slope?
Downward.
How does the supply curve slope?
Upward.
What is market equilibrium?
The price at which quantity supplied equals quantity demanded.
What does market equilibrium maximize?
Total surplus.
How is market equilibrium described as a way to organize economic activity?
It is efficient.
What does consumer surplus measure as an area on a graph?
The area under the demand curve and above the price line.
How is consumer surplus calculated from valuation and price?
Total valuation minus price times quantity.
What does producer surplus measure as an area on a graph?
The area above the supply curve and below the price line.
How is producer surplus calculated from price and total cost?
Price times quantity minus total cost.
How does a per-unit tax on sellers affect the supply curve?
It shifts upward by the amount of the tax.
How does a per-unit tax on buyers affect the demand curve?
It shifts downward by the amount of the tax.
How does a per-unit sales tax affect gains from trade?
It leaves some gains from trade unrealized.
How does a per-unit sales tax affect total welfare?
It reduces total welfare through deadweight loss.
What does total valuation v(Q) measure graphically?
The area under the valuation graph up to Q.
What is the marginal valuation of the Qth unit?
What does total cost c(Q) measure graphically?
The area under the cost graph up to Q.
What is the marginal cost of the Qth unit?
What drives the market toward the equilibrium price?
The forces of supply and demand.
What is the consumer surplus formula using valuation function ?
What is the producer surplus formula using cost function ?
Which region represents consumer surplus in a sales-tax surplus diagram?
Region A.
Which regions represent producer surplus in a sales-tax surplus diagram?
Regions H and I.
Which regions represent sales-tax revenue in a surplus diagram?
Regions B, C, E, and F.
Which regions represent deadweight loss in a sales-tax surplus diagram?
Regions D and G.
At a $42 price floor, what is quantity demanded when ?
8 units.
At a $42 price floor, what is quantity supplied when ?
11 units.
At a $42 price floor, how large is the surplus?
3 units.
At a $30 price ceiling, what is quantity demanded when ?
20 units.
At a $30 price ceiling, what is quantity supplied when ?
5 units.
At a $30 price ceiling, how large is the shortage?
15 units.
How does a $0.50-per-pound tariff on imported raw sugar affect generic soft drinks’ equilibrium price and quantity?
It raises equilibrium price and reduces equilibrium quantity.
How does planned Coca-Cola and Pepsi advertising affect generic soft drinks’ equilibrium price and quantity?
It reduces equilibrium price and increases equilibrium quantity.
Answer 14 questions on Demand, Supply and Markets.
1. A buyer is willing to purchase a good at prices below a particular cutoff. What does that cutoff represent?
2. A seller has a cost cutoff of $18 and is offered $23 for a unit. Based on the cutoff rule, what does the seller prefer to do?
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