Chapter 4 Applications of Demand and Supply Flashcards
1
Q
Price floor consequence
A
A price floor creates a surplus
Results in inefficient resource allocation since more resources were allocated to production than is actually needed
This causes deadweight loss, which is the loss of consumer and producer surplus. This is represented by the area on the graph under the price floor
2
Q
Minimum wage consequence
A
the government may encourage employers to employ fewer workers and instead substitute other factors of production
Workers that are fortunate to be retained would be better off but others would lose their job
(graph of wages against quantity of labour)
3
Q
Price ceiling
A
May generate a black market, where one exchanges goods at a price above the legally established price.
Graph for black market price
