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14 Cards in this Set
- Front
- Back
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Price Ceiling
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A legal maximum of the price at which a good can be sold
Creates Shortages |
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Price Floor
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A legal minimum of the price at which a good can be sold
Creates Surpluses |
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Price Ceiling that is Not Binding
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Price Ceiling that doesn't have an effect on the market because the equilibrium price is already below the ceiling
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When a government interferes in a market, they guarantee that...
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...the quantity supplied will not equal the quantity demanded. (In other words, equilibrium will be lost)
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When government interferes in a market with price ceilings or price floors...
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...some people benefit and some people are hurt. Due to surplus/shortage issues above or below the equilibrium line.
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Binding Price Ceiling (Binding Constraint)
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Price Ceiling that is below equilibrium price and will affect price/quantity demanded.
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When government imposes binding constraint on price of a good...
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...there is a shortage and sellers must ration the scarce good among a large group of potential buyers.
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Binding Price Floor
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Price Floor that is above equilibrium and will affect price/quantity demanded.
Causes a surplus |
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Price Floor that is Not Binding
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Price Floor that is below equilibrium and does not affect price/quantity demanded
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Rationing Mechanisms
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Undesirable---
Non-wage differences across applicants that determines distribution (after a binding price floor or binding price ceiling) |
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Tax Incidence
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the manner in which the burden of a tax is shared among participants in a market
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Taxes discourage market activity
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When a good is taxed, the quantity of the good sold is smaller in the new equilibrium
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Buyers and Sellers share the burden of taxes
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In the new equilibrium, buyers pay more for the good, and sellers receive less
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Tax levied on buyers...
Tax levied on sellers... |
both suffer
both suffer |
