Chapter 5 - Price Controls and Market Efficiency Flashcards
Give 2 situations where govt fixes price/change eq. price?
Minimum wage
Agricultural products
What is a price floor?
Min. price that’s set in the market
A binding price floor leads to excess _
Supply
Excess supply of labour = _
Unemployment
Who is worse off with min. wage? Better off?
Worse: firms and unemployed workers
Better: employed workers
What is a price ceiling? Give an example.
Max. price at which a product may be exchanged
Ex. rent controls
A binding price ceiling leads to excess _
Demand
Binding price ceiling usually gives rise to a _ _
Black market
What is a black market?
Where products are sold at prices that violate legal price control
What effects does rent control have? (3)
Shortage of housing (QD>QS)
Black market schemes
Illegal schemes like “key money”
Who gains from rent control?
Existing tenants in rent-controlled apartments
Who loses from rent control? (2)
Landlords
Potential future tenants
Price corresponding to a specific quantity demanded is the (highest/lowest) price (consumers/producers) are willing to pay
Highest, consumers
Shown by height of DC
Price corresponding to a specific quantity supplied is the (highest/lowest) price (consumers/producers) are willing to pay
Lowest, producers
Shown by height of SC
What is economic surplus?
Area below DC and above SC (before price floor/ceiling)
Consumer surplus + producer surplus
