Cengage CH6 MicroEcon

Competitive Market

• A market with many buyers and sellers where no one controls the price.
• Who actually pays the tax, regardless of who writes the check.
• The price where quantity demanded equals quantity supplied.
• A legal maximum price. If below equilibrium, it causes a shortage.

Answer explanation

Competitive Market: No one sets the price—buyers and sellers compete fairly.

Equilibrium Price

• The price where quantity demanded equals quantity supplied.
• The gap between what buyers pay and what sellers receive due to a tax.
• A legal minimum price. If above equilibrium, it causes a surplus.
• ('A measure of how much quantity demanded or supplied responds to changes in price.',)

Answer explanation

Equilibrium Price: It's the 'just right' price where supply meets demand.

Price Ceiling

• A legal maximum price. If below equilibrium, it causes a shortage.
• The price where quantity demanded equals quantity supplied.
• Who actually pays the tax, regardless of who writes the check.
• A legal minimum price. If above equilibrium, it causes a surplus.

Answer explanation

Price Ceiling: A price limit to help buyers—can cause shortages.

Price Floor

• A legal minimum price. If above equilibrium, it causes a surplus.
• ('A measure of how much quantity demanded or supplied responds to changes in price.',)
• A market with many buyers and sellers where no one controls the price.
• The gap between what buyers pay and what sellers receive due to a tax.

Answer explanation

Price Floor: A price limit to help sellers—can cause surpluses.

Tax Incidence

• Who actually pays the tax, regardless of who writes the check.
• A market with many buyers and sellers where no one controls the price.
• The gap between what buyers pay and what sellers receive due to a tax.
• The price where quantity demanded equals quantity supplied.

Answer explanation

Tax Incidence: Who really feels the tax, buyer or seller.

Tax Wedge

• The gap between what buyers pay and what sellers receive due to a tax.
• Who actually pays the tax, regardless of who writes the check.
• A legal maximum price. If below equilibrium, it causes a shortage.
• The price where quantity demanded equals quantity supplied.

Answer explanation

Tax Wedge: The difference between price paid and received because of a tax.

Elasticity

• ('A measure of how much quantity demanded or supplied responds to changes in price.',)
• A legal maximum price. If below equilibrium, it causes a shortage.
• The gap between what buyers pay and what sellers receive due to a tax.
• A market with many buyers and sellers where no one controls the price.

Answer explanation

Elasticity: How much quantity changes when price changes.

When the government imposes a binding price floor, it causes

• the supply curve to shift to the left.
• the demand curve to shift to the right.
• a shortage of the good to develop.
• a surplus of the good to develop.

In a market with a binding price ceiling, increasing the ceiling price will

• increase the surplus.
• increase the shortage.
• decrease the surplus.
• decrease the shortage.

Rent control causes larger shortages in the [ ] run because over that time horizon, supply and demand are [ ] elastic.

• long; more
• long; less
• short; more
• short; less