NCEA level 1 market equilibrium cheat sheet with definitions, examples, model answers, etc.
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Tax is an amount collected by the government from consumers and producers so the government.
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Taxes are paid can pay so the government can pay for infrastructure, encourage merit goods, discourage demerit goods, etc.
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-Direct tax is paid straight to the government by the party concerned (individual income tax, PAYE).
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-Indirect tax is collected by a third party and then paid to the government (GST)
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Taxes make goods less affordable and less profitable. Tax adds to cost- add to previous costs.
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Subsidy is a payment made by the government to producers.
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Subsidies may be paid to reduce the price of the good in order to increase consumption or to ensure that producers receive an "acceptable" price for their goods.
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Subsidies make goods more affordable and profitable. Subsidy adds to revenue- subtract from previous costs.
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Tariff is a tax on imported goods.
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This makes imports more expensive and less competitive against local goods.
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Tariffs increase a producers cost of production.
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If the equilibrium price of a good decreases due to a non-price factor eg. the bikini market in winter, flow-on effects will occur:
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-producers will lower price to clear excess stock
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-this price drop causes quantity supplied to decrease and quantity demanded to increase. equilibrium decreases QE-->Q1.
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The effect on the producer revenue depends on the size of the changes in price and quantity.
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The decrease in price means producers earn less from selling each unit, however they are selling more units.
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If the price change in proportionally bigger then revenue decreases.
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If the quantity increase in proportionally bigger then revenue increases.
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Supply
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the sum of all individual consumers' demand at each price
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Demand
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the sum of all individual producers' supply at each price
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Market Equilibrium
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relates to the price and quantity at which market demand and market supply are equal.
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-Government may decide to set a maximum price on a good (price ceiling) usually to ensure a good remains affordable for consumers.
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This means producers cannot legally charge more than the maximum price for this good.
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For example, public transport may have a price maximum set so it is accessible for everyone.
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-Government may decide to set a minimum price on a good (price floor) to reduce consumption of a good.
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This means producers cannot legally charge less than the minimum price for this good.
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For example, cigarettes may have a price minimum set to reduce the number of smokers by making smoking very expensive.
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