Question

Principles List #2

1.Verbally and Graphically describe the CONSUMER SURPLUS captured by the buyers of a product

2. Verbally and Graphically describe the PRODCUER SURPLUS captured by the seller of a product

3. Verbally and graphically describe the ONE economic condition necessary for firms in an economy to sell a

part of the product they produce to buyers in foreign economies (Exporting)

4. Verbally and graphically describe the ONE economic condition for necessary for buyers in an economy to

buy a part of the quantity they buy from sellers that produce the product in foreign economies (Importing)

5. Verbally and graphically describe a domestic market for some product in an equilibrium state as a NET

IMPORTER of a product and indicate the gains to the domestic buyers and the losses to the domestic sellers

6. Verbally and graphically describe the consequences of the Government restricting the quantity of a product

that can be imported by passing import tariffs or import quotas

Answer 1

1. Consumer surplus is the area below the demand curve and above market price. It measures difference between price consumer is willing to pay for a good and the actual price of good.

2. , Producer surplus is the area below market price and above supply curve. It measures difference between price recieved by seller and cost to seller.

3. When government set price above equilibrium price level then quantity supplied in the domestic market is greater than the quantity demanded in the domestic market. Therefore, gap between quantity supplied and quantity demanded is exported to foreign countries. In the diagram given below, Exports = Qs - Qd.

When market price is greater than equilibrium price then surplus of good occurs. As a result, exports of goods takes place.

4. When government set price below equilibrium price level then quantity demanded in the domestic market is greater than the quantity supplied in the domestic market. Therefore, gap between quantity demanded and quantity supplied is imported from foreign countries. In the diagram given below, Imports = Qd - Qs.

When market price is lower than equilibrium price then there will be shortage of goods in the domestic market. As a result, imports occurs.