Question

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Drag the words into the correct boxes Market occurs when all Net have been captured. This means Demand will equal and Marginal will equal Costs. This also occurs when there is no Loss. Net Benefits are all captured when the sum of Consumer and Surplus is maximised and there is no under or production or Price ceilings set equilibrium are said to be binding. This is because the market results in a where quantity demanded is than quantity supplied Price would normally but it is not allowed to. This means the market under so the market stops equilibrium. Sometimes a market results when some buyers resell the product at a price. Price Floors set equilibrium result in a Price will want to but it is unable to. This results in consumption stopping equilibrium this creating a deadweight loss. Monopoly prices are set than equilibrium and result in production and deadweight loss. Externalities distort the equiibrium in markets as externalities mean that external and benefits are not factored in to private demand and curves. As a result when external costs are not factored in markets produce or consume. When external benefits are not factored in markets produce or consume. To correct or those market failures Governments should goods with positive externalities and tax goods with externalities Sales taxes can be placed on consumers or When a tax is placed on producers it will shift the curve up by the amount of the tax the price buyers pay and the price sellers receive Consumer surplus and producer surplus Even though the government gains revenue the losses to consumers and producers are greater leading to a loss. Supply efficiency before greater produces above Marginal costs before Producer decreases Surplus Deadweight decreases Black shortage higher higher increases Benefits negative surplus decreases over subsidise consumption supply tax below Benefits supply rise producers deadweight under decrease over under

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Answer 1

Market efficiency occurs when all Net benefits have been captured. This means Demand will equal supply and Marginal Benefits will equal Marginal Costs. This also occurs when there is no Deadweight Loss.

Net Benefits are all captured when the sum of Consumer Surplus and Producer Surplus is maximised and there is no under or over production or consumption.

Price ceilings set below equilibrium are said to be binding. This is because the market results in a shortage where quantity demanded is higher than quantity supplied. Price would rise normally but it is not allowed to. This means the market under produces so the market stops before equilibrium. Sometimes a Black market results when some buyers resell the product at a higher price.

Price Floors set above equilibrium result in a surplus. Price will want to decrease but it is unable to. This results in consumption stopping below equilibrium this creating a deadweight loss.

Monopoly prices are set higher than equilibrium and result in under production and deadweight loss.

Externalities distort the equilibrium in markets as externalities mean that external costs and benefits are not factored in to private demand and supply curves. As a result when external costs are not factored in markets over produce or consume. When external benefits are not factored in markets under produce or consume. To correct or these market failures Governments should subsidise goods with positive externalities and tax goods with negative externalities.

Sales taxes can be placed on consumers or producers. When a tax is placed on producers it will shift the supply curve up by the amount of the tax the price buyers pay increases and the price sellers receive decreases. Consumer surplus decreases and producer surplus decreases. Even though the government gains tax revenue the losses to consumers and producers are greater leading to a deadweight loss