Midterm 3 Flashcards
Price Effect
the impact when price differs from equilibrium, causes a transfer of surplus between parties
Quantity Effect
the impact when quantity differs from equilibrium, causes a deadweight loss to society
Price Control
government laws to regualte prices instead of letting market forces determine prices
Quota
a government-imposed restriction on the number of goods bought and sold
Economic Tax Incidence
the distribution of tax based on who bears the burden in the new equilibrium, which will be the relatively less elastic of supply and demand
Legal Tax icidence
the legal distribution of who pays the tax
Externality
a market exchange that affects a third party who is outside or “external” to the exchange – also known as a “spillover”
Market Failure
when the market on its own does not allocate resources efficiently in a way that balances social costs and benefits – externalities are one example
Pigouvian Tax
a tax levied on any market activity that generates negative externalities
