Microeconomics Exam2 Word Scramble
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| Question | Answer |
| Consumer surplus | Buyers’ willingness to pay for a good minus the amount they actually pay |
| Consumer surplus measures | The benefit buyers get from participating in a market |
| Consumer surplus can be computed by | Finding the area below the demand curve and above the price. |
| Producer surplus | The amount sellers receive for their goods minus their costs of production |
| Producer surplus measures | The benefit sellers get from participating in a market |
| Producer surplus can be computed by | the area below the price and above the supply curve |
| Total surplus | The sum of consumer and producer surplus |
| What maximizes total surplus? | The equilibrium of supply and demand |
| Willingness to pay | the maximum amount that a buyer will pay for a good |
| Cost | the value of everything a seller must give up to produce a good |
| A price ceiling is | A legal maximum on the price of a good or service. |
| If the price ceiling is below the equilibrium price, then the price is | binding |
| When the price ceiling is binding | the quantity demanded exceeds the quantity supplied |
| A price floor is a | legal minimum on the price of a good or service. |
| If the price floor is above the equilibrium price, then the price is | binding |
| When the price floor is binding | the quantity supplied exceeds the quantity demanded |
| When the government levies a tax on a good, the equilibrium quantity of the good | Falls |
| A tax on a good places a wedge between | the price paid by buyers and the price received by sellers |
| When the market moves to the new equilibrium | buyers pay more for the good and sellers receive less for it. |
| The incidence of a tax depends on | the price elasticities of supply and demand |
| tax incidence | the manner in which the burden of a tax is shared among participants in a market |
| How Taxes on Sellers Affect Market Outcomes | -The supply curve will shift left by the exact amount of the tax -The quantity of the good sold will decline. |
| Lessons on taxes | 1. Taxes discourage market activity. 2. Buyers and sellers share the burden of a tax |
| How Taxes on Buyers Affect Market Outcomes | -The demand curve will shift left by the exact amount of the tax -Decrease in demand |
| When supply is elastic and demand is inelastic | the largest share of the tax burden falls on consumers |
| When supply is inelastic and demand is elastic | the largest share of the tax burden falls on producers |
| In general, a tax burden falls more heavily on the side of the market that is | less elastic |
| A small elasticity of demand means | buyers do not have good alternatives to consuming this product |
| small elasticity of supply means | sellers do not have good alternatives to producing this particular good |
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KenzieMWallace105
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