Government Welfare, Market Efficiency

Question 1

Price Ceiling

Answer 1

A legal maximum on the price at which a good can be sold
Causes Shortage
Lower Quantity Traded

Question 2

Price Floor

Answer 2

A legal minimum on the price at which the good can be sold.
Causes Surplus
Quantity supplied exceeds quantity demanded.

Question 3

Effects of Rationing

Answer 3

Transfers surplus from producers to consumers Efficiency loss
Some consumers who value the good highly might miss out and suffer huge surplus loss.
Can lead to black markets
Some consumers who do not value the good are encouraged to consume it.

Question 4

Bans

Answer 4

Some markets are illegal, causing black markets to form.

Some bans can be justified, however many can create serious problems and crime.

Question 5

Black Markets

Answer 5

Price controls often force trade underground.

Exchange becomes illegal but some people resort to crime,