chapter 5 Flashcards
1
Q
reasons for price disequilibrium
A
- government could set a max on price –> price ceiling
- government could set a min on price –> price floor
2
Q
binding price ceiling
A
- if the price ceiling is below the equilibrium price it is binding and causes a shortage
3
Q
who gains and who suffers from price ceiling
A
- buyers will wait for hours to enter soul only to find there is no supply left
- rent control: existing tenants gain, but landlords and potential future tenants (lower rent income, fewer apartments)
- may give rise to balck market - prices that violate legal price control
4
Q
price floor
A
- legal minimum on price of good or service
- ex. minimum wages
- if floor above eqm price it is binding and causes a surplus
5
Q
who gains and who suffers from a binding price floor
A
- ex. minimum wage
- reduces level of unemployment and increases quantity of labour services offered
- owners of firms worse off bc pay higher wage
- some workers lose jobs
6
Q
market efficiency
A
- controlled price generates benefits for some and costs for others
- reached if one cant makes someone better off without making someone worse off
7
Q
consumer surplus
A
the difference between what consumers are willing to pay and the price they actually have to pay
8
Q
producer surplus
A
the differenc between the actual price producers recieve and the minimum price they would accept
9
Q
total economic surplus
A
- consumer surplus + producer surplus
10
Q
deadweight loss
A
- the reduction in overall economic surplus
- what is lost
11
Q
why have government intervention?
A
- to help a specific group of people
- costs deemed a worthwhile price to pay for desired effect
