ch 5: price controls

Question 1

price controls

Answer 1

attempt to set prices through gov’t regulations (v free market)

Question 2

price ceiling

Answer 2

set maximum price for a good or service
set below the supply and demand price equilibrium

Question 3

unintended consequences of price ceilings

Answer 3

causes shortages, leading to black markets

Question 4

non-binding price ceiling

Answer 4

set above equilibrium price; has no effect, price will continue to be regulated by supply and demand

Question 5

binding price ceiling

Answer 5

price ceiling is below equilibrium price; prevents sellers from increasing the price causes them to reduce quantity

Question 6

unintended consequences of binding price ceiling

Answer 6

creates shortage in the short run; consumers are shut out of the market

Question 7

rent control

Answer 7

price ceiling that applies to the rental housing market
local gov’t cab cap the price to keep housing affordable

Question 8

unintended consequences of rent control

Answer 8

dilapidated buildings or subsidized housing being passed down over generations

Question 9

binding price ceiling requires sellers to

Answer 9

lower their selling price causing them to reduce quantity. in the long run supply and demand increase elasticity. consumers adjust their demand to the lower price