2.7(2) Price Ceiling/Floor

Question 1

price controls

Answer 1

a price intervention applied by governments. Price controls come in two types - maximum price and minimum price controls

Question 2

Maximum Price/Price Ceiling

Answer 2

when a government sets a maximum price, below the equilibrium price. Firms cannot charge beyond this price and the policy is designed to protect consumers from exploitation

Question 3

shortage

Answer 3

when demand exceeds supply

Question 4

rent controls

Answer 4

a price ceiling applied to the rental housing market

Question 5

minimum price / price floor

Answer 5

represents the lower limit imposed by the government below which the price may not fall

Question 6

surplus

Answer 6

when supply exceeds demand

Question 7

minimum wage

Answer 7

a minimum price placed on the price of labour which workers are prohibited from earning below

Question 8

real wage/classical unemployment

Answer 8

unemployment in the economy that occurs when labour market imperfections preserve a higher real wage rate than the equilibrium real wage rate