exam review

• What are the factors of demand and supply?

  Demand, supply, disposable income, costs of production, consumer trends, price of other goods, technology, consumer expectations, demographics
• What is the effect of a price ceiling below equilibrium price?

  • Causes a contraction in quantity supplied
  • Leads to a shortage in the market
  • Increases consumer surplus
  • Reduces producer surplus
  • Results in deadweight loss
• What are the factors of demand and supply?

  Demand, supply, disposable income, costs of production, consumer trends, price of other goods, technology, consumer expectations, demographics
• What is the effect of a price ceiling below equilibrium price?

  • Causes a contraction in quantity supplied
  • Leads to a shortage in the market
  • Increases consumer surplus
  • Reduces producer surplus
  • Results in deadweight loss
• What happens when a price ceiling is introduced in the rental market?

  It causes a shortage in the rental market due to restricted profits for landlords.
• How does a price floor above equilibrium price affect the milk market?

  It creates a surplus as quantity demanded decreases while quantity supplied increases.
• What happens when a price ceiling is introduced in the rental market?

  It causes a shortage in the rental market due to restricted profits for landlords
• What are the effects of a price floor on producer and consumer surplus?

  • Increases producer surplus
  • Reduces consumer surplus
  • Results in deadweight loss
• How does a price floor above equilibrium price affect the milk market?

  It creates a surplus as quantity demanded decreases while quantity supplied increases
• What are the consequences of a price floor in the milk market?

  • Increases producer surplus
  • Reduces consumer surplus
  • Leads to deadweight loss
  • Prevents market from reaching equilibrium
• What is the definition of taxes in the context of market operation?

  Taxes are a portion of the value of a good or service paid to the government.
• What is the impact of a tax on the supply of carbon?

  It reduces supply as suppliers may be unwilling or unable to absorb the tax.
• What is the definition of taxes in the context of market operation?

  Taxes are a portion of the value of a good or service paid to the government
• What are the consequences of introducing a subsidy on vegetables?

  • Increases supply of vegetables
  • Lowers prices for consumers
  • Increases profits for producers
  • Results in deadweight loss larger than benefits
• How does a tax on carbon affect supply?

  It reduces supply as suppliers may be unwilling to pay the tax
• What is the impact of a subsidy on vegetables?

  It increases supply and benefits both consumers and producers
• What is an externality in economic terms?

  An externality is an unintended cost or benefit due to production or consumption not reflected in price.
• What is a production externality?

  • An unintended cost or benefit from production
  • Occurs when private costs differ from external costs
  • Can lead to overproduction or underproduction
• What defines a negative production externality?

  It occurs when private costs of production are less than external costs, leading to overproduction.
• What is an example of a negative production externality?

  Pollution
• What is a negative production externality?

  It occurs when private costs are less than external costs, leading to overproduction
• What is a positive production externality?

  It occurs when private costs are greater than external costs, leading to underproduction
• What is a positive production externality?

  It occurs when private costs of production are greater than external costs, leading to underproduction.
• What is a consumption externality?

  • An unintended cost or benefit from consumption
  • Demand curve reflects private benefit
  • Market is efficient if private and external benefits are equal
• What is an example of a positive production externality?

  Legumes
• What is a negative consumption externality?

  It occurs when private benefits are larger than external benefits, leading to overconsumption
• What is a consumption externality?

  • It reflects the difference between private and external benefits of consumption.
  • If private and external benefits are equal, the market is efficient.
  • A difference indicates a consumption externality.
• What is a positive consumption externality?

  It occurs when private benefits are smaller than external benefits, leading to underconsumption
• What is a negative consumption externality?

  It occurs when private benefits of consumption exceed external benefits, leading to overconsumption.
• How does the government address negative externalities?

  • Implements taxes to reduce consumption or production
  • Regulates activities causing negative externalities
  • Provides incentives for alternatives
• What are examples of negative consumption externalities?

  Petrol, cigarettes, alcohol, antibiotics
• How does the government address positive externalities?

  • Provides subsidies to encourage production or consumption
  • Supports initiatives that generate external benefits
  • Promotes awareness of benefits
• What is a positive consumption externality?

  It occurs when private benefits of consumption are less than external benefits, leading to underconsumption.
• What are examples of positive consumption externalities?

  Education, vaccination, healthcare, gyms
• How does the government address negative externalities?

  • Implements taxes to discourage production/consumption
  • Enforces regulations to limit harmful activities
• How does the government address positive externalities?

  • Provides subsidies to encourage production/consumption
  • Supports initiatives that yield external benefits