1. Revision Achievement Standard 3.1 4credits Demonstrate understanding of the efficiency of market equilibrium Name ______________________

2. Define the following words Allocative Efficiency_______________________________________ _______________________________________________________ Consumer Surplus ________________________________________ _______________________________________________________ Producer Surplus _________________________________________ _______________________________________________________ Dead Weight Loss ________________________________________ _______________________________________________________ Law of Demand __________________________________________ _______________________________________________________ Law of Supply _______________________________________________________ _______________________________________________________

3. Define the following words Allocative Efficiency A point where no one can be made better off without someone being made worse off. (Consumer and producers surplus is maximised and there is no DWL) Consumer Surplus The difference between what consumers are willing to pay and the actual price paid for a commodity Producer Surplus The difference between the revenue received by a producer and the cost necessary to produce the good Dead Weight Loss A Loss of allocative efficiency in the economy Law of Demand As price increases quantity demanded decreases vice versa ceteris paribus Law of Supply As price increases quantity supplied increases vice versa ceteris paribus

4. 1.Label the demand and supply curves 2.Label both axis’s 3.Use the diagram to show Equilibrium Price (Pe) Equilibrium Quantity (Qe) Producer Surplus (Colour Blue) Consumer Surplus (Colour Red) Use an arrow to show the allocative efficient point MARKET EQUILIBRIUM AND ALLOACTIVE EFFICIENCY

5. Producer Surplus Price Quantity S D Pe Qe Allocative efficient point

6. Changes to Demand List the four factors that will shift the demand curve T___________________________ I ___________ Increase In demand Decrease In demand C _____________________ S______________________ On both the graphs. Label equilibrium price and quantity. Then shade in the NEW consumer Red and producer surplus Blue

7. Changes to Demand List the four factors that will shift the demand curve Tastes and preferneces Income Increase In demand Decrease In demand Complements Substitutes On both the graphs. Label equilibrium price and quantity. Then shade in the NEW consumer Red and producer surplus Blue

8. Changes to Supply List the factors that can cause a shift of the supply curve C____________________________ E__________________ P____________________ P_____________________________ T_____ S______________ Increase In Supply Decrease In Supply On both the graphs. Label equilibrium price and quantity. Then shade in the NEW consumer surplus Red and producer surplus Blue

9. Changes to Supply List the factors that can cause a shift of the supply curve Cost of Production Environmental Productivity Price of related goods Taxes Subsidies Increase In Supply Decrease In Supply On both the graphs. Label equilibrium price and quantity. Then shade in the NEW consumer surplus Red and producer surplus Blue S S DD S’

10. Disequilibrium Define the following words Surplus ________________________________________________ ______________________________________________________ Shortage _______________________________________________ ______________________________________________________ Show the effect of a market price above equilibrium Show the effect of a market price below equilibrium

11. Disequilibrium Define the following words Surplus When quantity supplied is greater than quantity demanded Shortage When quantity demanded is greater than quantity supplied Show the effect of a market price above equilibrium Show the effect of a market price below equilibrium S D D S QDQS Surplus QD QS Shortage

12. Restoring Equilibrium Following a surplus explain how market equilibrium is restored _____________________________________________ _____________________________________________ ____________________________________________ __________________________________________ Following a shortage explain how market equilibrium is restored _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________

13. Restoring Equilibrium Following a surplus explain how market equilibrium is restored When a surplus is created, producers will respond by lowering prices to get rid of excess stock. As prices decrease the quantity supplied decreases following the law of supply and the quantity demanded increases following the law of demand. This process continues until equilibrium is restored. Following a shortage explain how market equilibrium is restored When a shortage is created, consumers will bid up the prices as they don’t want to miss out on the good. As prices increase, the quantity supplied increases as the good becomes more profitable following the law of supply and quantity demanded decreases as the good becomes less affordable following the law of demand. This process continues until equilibrium is restored.

14. Restoring Equilibrium 1.Show the effects of the changes on the graphs below 2.Explain the situation created (Either Shortage or Surplus) 3.Say how the market will be restored (Either consumers bid up prices or producers lower prices) Situation created: _______________ How will the market return to equilibrium?_______________ Situation created: _______________ How will the market return to equilibrium?_______________ Situation created: _______________ How will the market return to equilibrium?_______________ Situation created: _______________ How will the market return to equilibrium?_______________ S D S D S D S D Increase in demand Decrease in demand Increase in Supply Decrease in Supply

15. Restoring Equilibrium 1.Show the effects of the changes on the graphs below 2.Explain the situation created (Either Shortage or Surplus) 3.Say how the market will be restored (Either consumers bid up prices or producers lower prices) Situation created: Shortage How will the market return to equilibrium? Consumers will bid up the price Situation created: Surplus How will the market return to equilibrium? Producers will lower prices Situation created: Surplus How will the market return to equilibrium? Producers will lower prices Situation created: Shortage How will the market return to equilibrium? Consumers will bid up the price S D S D S D S D Increase in demand Decrease in demand Increase in Supply Decrease in Supply P Q P Q P Q P Q D1 P1 Q1 D1 P1 Q1 S1 P1 Q1 S1 P1 Q1

16. Price Max Price Quantity S D Pm Qm 1.Show the effect of a Price Maximum on the diagram 2.Label the new price as Pmax 3.Label the new quantity demanded as QD 4.Label the new quantity supplied as QS 5.Label the surplus/shortage that exists 6.Shade in the area of consumer surplus red 7.Shade in the area of producer surplus as blue 8.Shade in DWL in black

17. A Maximum Price Price Quantity S D Pm Qm Pmax

18. A Maximum Price Price Quantity S D Pm Qm Qs decreases Although consumers would like to buy more producers only supply Qs There is a shortage Pmax Qs Qd

19. A Maximum Price Price Quantity S D Pm Qm Pmax New CS Qs

20. A Maximum Price Price Quantity S D Pm Qm Pmax New PS Qs

21. A Maximum Price Price Quantity S D Pm Qm DWL Pmax Qs

22. Price Min Price Quantity S D Pm Qm 1.Show the effect of a Price Minimum on the diagram 2.Label the new price as Pmin 3.Label the new quantity demanded as QD 4.Label the new quantity supplied as QS 5.Label the surplus/shortage that exists 6.Shade in the area of consumer surplus red 7.Shade in the area of producer surplus as blue 8.Shade in DWL in black

23. A Minimum Price Price Quantity S D Pm Qm

24. A Minimum Price Price Quantity S D Pmin Qm Pm A minimum price is only effective when set above equilibrium price

25. A Minimum Price Price Quantity S D Pmin Qm Pm Qd Qd decreases Although producers would like to sell more they are unable to at this high price

26. A Minimum Price Price Quantity S D Pmin Qm Pm New CS Qd

27. A Minimum Price Price Quantity S D Pmin Qm Pm New PS Qd

28. A Minimum Price Price Quantity S D Pmin Qm Pm DWL Qd

29. Subsidy Price Quantity S D Pm Qm 1.Show the effect of a subsidy on the diagram 2.Label the new price consumers pay as PC 3.Label the new price producers receive as PP 4.Label the new quantity as Q1 5.Outline the total cost to the government in Black 6.Shade in the area of consumer surplus red stripes 7.Shade in the area of producer surplus as blue stripes 8.Shade in DWL in black

30. A Subsidy Price Quantity S D Pm Qm S+Subsidy Q1 Pc Pp 1.Show the effect of a subsidy on the diagram 2.Label the new price consumers pay as PC 3.Label the new price producers receive as PP 4.Label the new quantity as Q1 5.Outline the total cost to the government in Black 6.Shade in the area of consumer surplus red stripes 7.Shade in the area of producer surplus as blue stripes 8.Shade in DWL in black

31. Subsidy On the diagram, show the effect on the market for avocados after a subsidy payment of.60c per avocado Label the new Equilibrium price Pc and Quantity Q1 Before the subsidy Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Total consumer expenditure =______________________ Total producer revenue =_______________________ After the subsidy Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Amount of government expenditure =_______________ Total consumer expenditure =______________________ Total producer revenue =_______________________

32. Subsidy On the diagram, show the effect on the market for avocados after a subsidy payment of.60c per avocado Label the new Equilibrium price Pc and Quantity Q1 Before the subsidy Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Total consumer expenditure =______________________ Total producer revenue =_______________________ After the subsidy Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Amount of government expenditure =_______________ Total consumer expenditure =______________________ Total producer revenue =_______________________ 80 000 1.80 $144000 S + Sub pc Q1 90 000 $1.60 $2.20.60 x 90000= $54000 1.60 x 90000= $144000 2.20 x 90000= $198000

33. Tax Price Quantity S D Pm Qm 1.Show the effect of a indirect Tax on the diagram 2.Label the new price consumers pay as PC 3.Label the new price producers receive as PP 4.Label the new quantity as Q1 5.Outline the total revenue to the government in Black 6.Shade in the area of consumer surplus red stripes 7.Shade in the area of producer surplus as blue stripes 8.Shade in DWL in black

34. An Indirect Tax Price Quantity S D Pm Qm S+tax Q1 Pc Pp 1.Show the effect of a indirect Tax on the diagram 2.Label the new price consumers pay as PC 3.Label the new price producers receive as PP 4.Label the new quantity as Q1 5.Outline the total revenue to the government in Black 6.Shade in the area of consumer surplus red stripes 7.Shade in the area of producer surplus as blue stripes 8.Shade in DWL in black

35. Tax On the diagram, show the effect on the market for Fireworks of a $4 tax per box Label the new Equilibrium price Pc and Quantity Q1 Before the Tax Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Total consumer expenditure =______________________ Total producer revenue =_______________________ After the Tax Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Amount of government revenue =_______________ Total consumer expenditure =______________________ Total producer revenue =_______________________

36. Tax On the diagram, show the effect on the market for Fireworks of a $4 tax per box Label the new Equilibrium price Pc and Quantity Q1 Before the Tax Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Total consumer expenditure =______________________ Total producer revenue =_______________________ After the Tax Amount consumed =__________ Price consumers pay =________ Price producers receive =______ Amount of government revenue =_______________ Total consumer expenditure =______________________ Total producer revenue =_______________________ 100 $14 $14 x 100 =$1400 S + Tax Q1 Pc Q P 75 $16 $12 4 x 75 = $300 16 x 75 = 1200 12 x 75 = 900

37. Incidence of a Tax Price Quantity S D Pm Qm S+tax Q’ Pc Pp Colour the Area of the incidence of the tax on consumers RED (The area of consumer surplus they have lost and is now tax revenue to the government) Colour the area represents the incidence of the tax on producers BLUE (The area of producer surplus they have lost and is now tax revenue to the government)

38. Incidence of a Tax Price Quantity S D Pm Qm S+tax Q’ Pc Pp Colour the Area of the incidence of the tax on consumers RED (The area of consumer surplus they have lost and is now tax revenue to the government) Colour the area represents the incidence of the tax on producers BLUE (The area of producer surplus they have lost and is now tax revenue to the government)

39. Price Elasticity Of Demand Define the following Inelastic _______________________________________ ______________________________________________ Elastic ________________________________________ ______________________________________________ Elastic Demand Curve Inelastic Demand Curve

40. Price Elasticity Of Demand Define the following Inelastic When the price increases the quantity demanded falls by proportionately less Elastic When the price increases the quantity demanded falls by proportionately more Elastic Demand Curve Inelastic Demand Curve D D

41. Incidence of a Tax and Elasticity's Relatively Elastic Demand Relatively Inelastic Demand For both graphs 1.Colour the Area of the incidence of the tax on consumers RED 2.Colour the area represents the incidence of the tax on producers BLUE 3.Who pays most of the tax when the good is inelastic? ____________________________ 4.Who pays most of the tax when the good is elastic ?_____________________________

42. Incidence of a Tax and Elasticity's Relatively Elastic Demand Relatively Inelastic Demand For both graphs 1.Colour the Area of the incidence of the tax on consumers RED 2.Colour the area represents the incidence of the tax on producers BLUE 3.Who pays most of the tax when the good is inelastic? Consumers 4.Who pays most of the tax when the good is elastic ? Producers

43. Exported Goods Define Exports _________________________________________ Explain why NZ is a price taker _____________________________ ______________________________________________________ On the graph Draw an appropriate world price for an exported good Label the domestic demand at that price as QD Label the domestic supply at that price level as QS Label the level of exports X Shade in consumer surplus red Shade in producer surplus Blue

44. Exported Goods Define Exports Goods that are produced in NZ and consumed/ sold overseas Explain why NZ is a price taker NZ is a price taker because we are so small in relation to the rest of the world we have no influence over the world price ______________________________________________________ On the graph Draw an appropriate world price for an exported good Label the domestic demand at that price as QD Label the domestic supply at that price level as QS Label the level of exports X Shade in consumer surplus red Shade in producer surplus Blue World Price QDQS World Demand curve X

45. Imported Goods Define Imports _________________________________________ On the graph Draw an appropriate world price for an imported good Label the domestic demand at that price as QD Label the domestic supply at that price level as QS Label the level of imports M Shade in consumer surplus red Shade in producer surplus Blue

46. Imported Goods Define Imports Goods produced overseas and sold/ consumed in NZ On the graph Draw an appropriate world price for an imported good Label the domestic demand at that price as QD Label the domestic supply at that price level as QS Label the level of imports M Shade in consumer surplus red Shade in producer surplus Blue World Price QD QS Imports World supply curve

47. Effects of a Tariff Define a tariff _________________________________________ On the graph Label the domestic demand at the current world price as QD Label the domestic supply at the current world price as QS Show the effect of the government placing a tariff on imports Label the new level demanded as QD1 Label the new level supplied as QS1 Label the new level of imports as M Shade in DWL (Black) Shade in the area of government revenue (Green) Explain what happens to allocative efficiency _______________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ PW

48. Effects of a Tariff Define a tariff – A tax on imported Goods On the graph Label the domestic demand at the current world price as QD Label the domestic supply at the current world price as QS Show the effect of the government placing a tariff on imports Label the new level demanded as QD1 Label the new level supplied as QS1 Label the new level of imports as M Shade in DWL (Black) Shade in the area of government revenue (Green) Explain what happens to allocative efficiency. A Tariff increases the world price. This causes consumer surplus to fall as the price paid by consumers increases. producer surplus to fall and governments increase the amount of revenue gained. However due to not all of the loss in consumer and producer surplus being gained in government revenue a loss in allocative efficiency occurs as represented by the DWL on the graph. PW QS QD PW + Tariff QS1 QD1 M