Chapter 6 (GOVERNMENT POLICY CHOICES)

Question 1

Price Ceilings

Answer 1

• maximum price set by governments making it illegal to change higher price (ex: rent controls)
• eliminates surpluses
• rent controls are inefficient and reduce total surplus
• rent controls fix rents below market-clearing levels and quantity adjustments take the unintended form of apartment shortages

Question 2

Robin Hood Principle

Answer 2

To take from the rich and give to the poor

Question 3

Price Floors

Answer 3

• minimum prices set by the government making it illegal to pay lower price

Ex: minimum wage laws

• eliminates shortages
• minimum wage laws fix wages above market-clearing levels and quantity adjustments takes the unintended form of unemployment

Question 4

Equity

Answer 4

• free health care systems… free but long waiting times
• liberal ideal

Question 5

Efficiency

Answer 5

• private healthcare system… more expensive but short waiting times
• conservative ideal