Price Controls Flashcards
Price Controls
Government intervenes to regulate prices.
Legal restrictions on how high or low a market price may go
Price Ceiling
Maximum price sellers are allowed to charge
Price Floor
Minimum price buyers are required to pay
Deadweight loss
Loss in total surplus when policy reduces the quantity transacted below equilibrium quantity
Inefficient allocation to customers
People who are willing to pay high price don’t buy it.
Only those who want to pay low price do
Wasted resources
People expend money, effort, and time to cope with shortages caused by price ceilings
Inefficiently low quality
Sellers offer low-quality goods at low price, even though buyers want high quality and high price
Black Market
Goods/Services sold illegally.
~>Illegal to sell them
~>Charged prices are legally prohibited by the price ceiling
Inefficient allocation of sales among sellers
Who would sell at the lower price now cannot
Inefficiently high quality
Sellers offer high quality goods and high price, although some people want low quality and low price
Controlling Quantities
Quantity Control / Quota is the maximum amount of good that can be bought/sold
—> Quota Limit Total amount of good that can be legally transacted
Quota Limit
Total amount of good that can be legally transacted
License
Gives owner right to supply a good
Demand Price
Price at which consumers will demand that quantity
Supply Price
Price at which producers will supply that quantity
