Chapter 6 Flashcards
A government regulation that makes it illegal to charge a price higher than a specific level
Price ceiling/ price cap
Equilibrium price
quantity demand = quantity supplied
A price ceiling set _____ the equilibrium price has no effect on the market
above
A price ceiling set ______ the equilibrium has powerful effect on the market
below
When a price ceiling is applied to the housing market it is called
rent ceiling
A rent ceiling set below the equilibrium creates:
- A housing shortage
- Increased search activity
- A black market
The time spend looking for someone with whom to do business is called
Search activity (checking alternatives available before making a choice.
Opportunity cost
potential benefits or loss that a business or an individual consumer misses out on when choosing one alternative over another. (The value of option not taken)
The opportunity cost of housing is equal to
rent + time spend on search activity
A rent ceiling controls only the ____ proportion of the cost of housing
rent
An illegal market in which equilibrium price exceeds the price ceiling
Black market
Scalper
A person who buys large quantities of in-demand items, and sell them to make profit
The level of the black market depends on the price ceiling, loose enforcement black market price is close to _______. With strict enforcement, market rent is equal to _______ price a consumer is willing to pay.
unregulated (rent), maximum
Deadweight loss
- Value of trades that doesn’t occur because of tax
- supply and demand are not in equilibrium
- leads to market inefficiency
- often because of tax (the government does not earn the revenue)
Market inefficiency
occurs when goods within the market are either overvalued or undervalued
Producer surplus
difference between the price producers sell the product and the minimum price they accept to sell the product
- surplus comes from what they earn from selling products beyond their minimum price
Consumer surplus
difference between the price consumers are willing to pay and what they actually have to pay.
Full loss from rent ceiling =
deadweight loss + increased cost of search
When rent is not permitted to allocate scarce housing, some possible mechanics (unfair) are:
- Lottery
- first come first serve
- discrimination
Anything that blocks voluntary exchange is unfair
fair-rules
A method that allocates resources based on views and self-interest of the owner
discrimination
the fairest outcome is allocating resources (scarce housing) to the poorest is a result of what rule
fair-result view
The lower the wage rate, the greater the quantity of labour ________
Demanded
A method that allocates resources to the luckiest
lottery
Market that influence the jobs we get and wages we earn
Labour market
The ______ the wage rate, the greater the quantity of labour supplied
higher
A government regulation that makes it illegal to charge a price lower than a specific level
price floor
A price floor set _____ the equilibrium price has no effect on the market
lower
A price floor set _____ the equilibrium price has powerful effect on the market
higher
A price floor applied to a labour market
Minimum wage
Minimum wage brings __________
unemployment
A minimum wage set above the equilibrium wage results in a ________
surplus of labour
According to both views of fairness, it minimum wage fair?
No
- unfair result, unfair rule
The minimum wage is unfair because:
It imposes an unfair rule because:
- only those who have a job and continue to work receive the minimum wage
- increase job search activity
-blocks voluntary exchange
- companies are willing to hire more, people are willing to work more
In labour market, the ______ measures the worker’s marginal social cost of labour.
supply curve
______ of demand and supply determines who pays the tax
Elasticity
The division of burden of a tax between buyers and sellers is called
Tax incidence
If the price paid by buyers rises by the full amount of the tax, the burden of tax _______
falls entirely on the buyer
If the price paid by buyers rises by a lesser amount than the tax, the burden of tax _______
falls partly on both buyers and sellers
If the price paid by buyers doesn’t change, the burden of tax _______
falls entirely on the seller
True or false : Tax incidence depends on the tax law
False, Tax incidence does not depends on the tax law
Tax result in
inefficient underproduction
Perfectly inelastic demand means
buyers pay
perfectly elastic demand means
sellers pay
Total loss of minimum wage =
deadweight loss + increased cost of job search
A tax on buyers decreases ________, and shifts demand curve ________
demand, leftwards
Perfectly inelastic is a _______ line on the graph (demand curve)
vertical
perfectly elastic is a ________ line on the graph (demand curve)
horizontal
There is underproduction and deadweight loss when it is a perfectly _____ demand
elastic
Economists propose two conflicting principles of fairness to apply to a tax system:
The benefits principle
The ability-to-pay principle
The principle that people should pay taxes equal to the benefits they receive from the services provided by the government.
The benefits principle
- it is fair because people with more benefits pay most taxes
A principle that people should pay taxes according to how easily they can bear the burden of the tax.
The ability-to-pay principle
- justifies high rates of income tax on high incomes. (rich pays more)
Perfectly inelastic supply means
seller pays
Perfectly elastic supply means
buyers pay
More elasticity the supply, the larger is the amount of tax paid by the ______
buyers
More inelasticity the demand, the larger is the amount of tax paid by the ______
buyers
protection quota
Limit of quantity of goods
intervention in markets for farm products takes two main forms:
Production quotas
Subsidies
subsidy
A payment made by the government to a producer.
A production quota set below the equilibrium quantity has big effects including the following:
- A decrease in supply
- A rise in price
- A decrease in marginal cost
- Inefficient underproduction
- An incentive to cheat and overproduce
A subsidy has effects such as:
- An increase in supply
- A fall in price
- An increase in marginal cost
- Inefficient overproduction
Marginal social benefit is equal to the market price is due to what case
subsidy
All the things you can afford to buy
consumption possibilities
The choices you make as a buyer of goods and service
Consumption choices
Consumption choices are influenced by two factors:
- Consumption possibilities
- preferences
