Chapter 6 Flashcards
What is price control?
Price control refers to government-imposed limits on the prices charged for goods and services in a market.
What are the two main types of price controls?
Price ceilings and price floors.
What is a price ceiling?
A maximum price set by the government that sellers cannot exceed, intended to keep essential goods affordable.
What is a price floor?
A minimum price set by the government that sellers cannot go below, aimed at ensuring producers receive a fair income.
Give an example of a price ceiling.
rent control, where landlords cannot charge above a certain price for housing.
Give an example of a price floor.
Minimum wage laws, where employers cannot pay less than a specified amount per hour.
What are the potential effects of a price ceiling?
Shortages, reduced quality, and black markets may arise as demand exceeds supply at the controlled price.
What are the potential effects of a price floor?
Surpluses, increased production costs, and inefficiencies may occur when supply exceeds demand at the controlled price.
How can price controls lead to market inefficiencies?
They can distort the natural equilibrium of supply and demand, leading to misallocation of resources.
What is an unintended consequence of price controls?
Black markets may emerge as buyers and sellers seek to transact outside of the regulated prices.
