ch 5 Flashcards
why governments control prices
equity concerns, please certain buyers or sellers eg if prices for rent is too high the gov will intervene
what are price controls
maxes and minimums the government creates to regulate prices
price ceiling
maximum price set
price floor
minimum price
price celling potential effects
the price celling if set too low will cause a shortage in supply because sellers will refuse to sell at that price (possibly because the price will cause them to lose money)
price floor potential effects
if the floor is set too high then buyers might refuse to buy the goods since it is too much for them
how price ceilings cause inefficiency
lower quantity sold/produced, inefficient allocation to customers, wasted resources, lower quality black markets
how do sellers respond to price controls
they reduce the quality and the service
black markets
illegal sale or exchange of a good like bribing this makes society worse
winners and losers of price control
the producers always lose because they make less money the consumer wins if they are lucky but because producers aren’t making money they will refuse to rent and consumers are left in a worse position then before
price floor potential effects
deadweight loss, ineffiecitinly high quality just to compete
deadweight loss
when supply and demand aren’t in equilibrium causing a extra supply that is wasted ie too much bread made and the baker has to throw the excess out
ineffiecitanly low quantity
quantity that is supplied is lower then the amount demanded
how do price floors mess up sales
the allow for high cost firms to operate and prevent low cost firms from entering the market
why do price floors encourage waste
because they create a surplus of good produced that is more then the equilibrium price
