Chapter 6 - Price Controls

Question 1

PRICE CONTROL

Answer 1

a regulation that sets a maximum/minimum legal price for a particular good

• -> The direct effect of a price control = to hold the price of a good up / down when the market shifts
• thus preventing the market from reaching a new equilibrium

Question 2

(2) [opposing] CATEGORIES OF PRICE CONTROLS:

Answer 2

• PRICE CEILINGS

- PRICE FLOOR

Question 3

PRICE CEILINGS

Answer 3

A maximum legal price at which a good can be sold.

–> Typically placed on essential goods and services such as food, gasoline, and electricity.

• Lower price –> fewer producers = willing to sell tortillas

Question 4

DEADWEIGHT LOSS

Answer 4

represents the loss of total surplus that occurs b/c the quantity of a good bought & sold = below the market equilibrium quantity

Question 5

PRICE FLOOR

Answer 5

A minimum legal price at which a good can be sold.

–> Typically placed on agricultural goods –> considering that farming is risky business–subject to bad weather, crop failure, and unreliable prices (but also an essential one, if people are to have enough to eat)

– > Seen as a way to guarantee farmers a minimum income in the face of these difficulties –> keeping them in business & ensuring a reliable supply of food

–> as a result, the price floor = creates an excess quantity supplied of milk that is EQUAL to the difference between the quantity supplied & the quantity demanded

–> like price ceilings, price floors = change the distribution of surplus –> but in this case, producers = win at the expense of consumers