Chapter 4 Flashcards
Price Ceiling
a legal maximum on the price at which a good can be sold
Non-binding Price Ceiling
a price ceiling above the equilibrium so it does not effect the market and the price can stay the same
Binding Price Ceiling
a price ceiling below the equilibrium; quantity demanded is greater than quantity supplied so there is a shortage
Alternative rationing mechanisms
when there is a shortage queuing, favored customers, ration coupons and the black market can develop
Queuing
waiting in line for gas; paying a higher price for gas so you are paying with your time
Favored customers
give gas attendant a $20 to go to front of line so still paying more
Ration Coupons
coupons sold to people who want to pay
Black Market
legal trading takes place at market determined prices
Price Floors
a legal minimum on the price at which a good can be sold; most common price floor is minimum wage
Non-binding price floor
a price floor that is below the equilibrium and does not effect the market
Binding price floor
a price floor that is above the equilibrium; quantity supplied is greater than quantity demanded so there is a surplus
Welfare Economics
the study of how the allocation of resources affects economic well-being; we study this so we can analyze how benefits accumulate to both buyers and sellers
Consumer Surplus
measures the difference between what a consumer would have been willing to pay and the price they actually paid for a good or service
Producer Surplus
difference between what a producer would have been willing to charge and equilibrium price
Total Surplus
Consumer surplus + Producer surplus; market maximizes in equilibrium
