Chapter 6 - Supply, Demand, and Government Policies Flashcards
1
Q
Price Ceiling
A
- a government price control
- a legal maximum on the price of a good or service
- e.g. rent control
2
Q
Price Floor
A
- a government price control
- a legal minimum on the price of a good or service
- e.g. min wage
3
Q
Non-Binding Price Ceiling
A
- a price ceiling above the equilibrium price
4
Q
Binding Price Ceiling
A
- a price ceiling below the equilibrium price
5
Q
Shortages and Rationing
A
- sellers must ration goods among buyers in shortage
- Sellers’ bias (unfair/inefficient)
- Waiting (inefficient)
- Price (willingness-to-pay) (efficient and more fair)
- Price ceilings create shortages and prevent price to be used as an efficient rationing mechanism
6
Q
Non-Binding Price Floor
A
- price floor below equilibrium price
7
Q
Binding Price Floor
A
- above equilibrium price
8
Q
Taxes and the Demand Curve
A
- a tax on buyers effectively shifts the demand curve down by the amount of the tax
9
Q
Tax Incidence
A
- how the burden of a tax is shared among market participants
10
Q
Taxes and the Supply Curve
A
- a tax on sellers effectively shifts the supply curve up by the amount of the tax
11
Q
Solving Equilibrium w Taxes
A
Pbuy = Psell + T Qdt = a - b Pbuy Qdt = Qs
