Chapter 6 Flashcards
What is a price control and what are the two different types?
A measure, usually taken by the government to ease the burden on society, that aims to control prices in the market
Price ceiling and price floor
What is a price ceiling and what are the two types?
A price ceiling is a legally established maximum price for a certain good or service. This mainly aims to help consumers. They can either be binding or non-binding
What are some of the effects of a price ceiling?
Higher demand and lower supply because of lower price. This would lead to a decrease in the quality of the good/service provided or the proliferation of black markets
What is a black market?
Black markets are illegal markets that arise when price controls are in place
When does and does not a price ceiling have an effect?
When a price ceiling is binding and is above the market equilibrium, it does not have any effect on the market. when When a price ceiling is binding and is below the market equilibrium, then it causes a shortage and the black market/market price forms
What happens in the long run to a price ceiling?
The supply and demand curves spread apart more causing a larger shortage because consumers increase their demand based on the lower price and producers produce less because of the lower price
What is rent control?
Rent control is where there is a price ceiling on rent, which unfairly benefits current tenants, allowing them to remain in rental properties and buy properties elsewhere. It also decreases the incentive for renters to maintain the upkeep of their properties
What are price gouging laws and how do they affect the market?
Laws that aim to set a price that producers can set during times of emergency and high necessity. When the demand curve moves to the right, it intersects with the supply curve at a point higher than the price ceiling, thus creating a shortage
What is a price floor and what are the two different types?
A price floor is a legally established minimum price for a certain good or service. This mainly aims to help producers. They can either be binding or non-binding
When does and does not a price floor have an effect?
When a price floor is binding i.e below the market equilibrium, it does not have any effect on the market. When a price floor is binding i.e above the market equilibrium, then it causes a surplus and the black market/market price forms
What happens in the long run to a price floor?
The supply and demand curves spread apart more causing a larger surplus because consumers decrease their demand based on the higher price and producers produce more because of the higher price
What effect does the minimum wage have on the market?
If it is above the market equilibrium, businesses are reluctant to have more workers and thus there is an oversupply of workers. This is injurious primarily to potential workers who are looking to enter the workforce
