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Review of Chapter 8 Macmillan
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Microeconomics
shortages
housing
loss
University/Undergrad
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20 Terms
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1
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What is a price ceiling?
a maximum price allowed by law
2
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What effects does a price ceiling create?
shortages, reductions in product quality, wasteful lines and other search costs, a loss of gains from trade, and a misallocation of resources
3
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Why are there reductions in qualities?
suppliers have more customers than they have goods, so they start to cut quality because they need more
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What is another type of reduction in quality?
reduction in services
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Why could there be a reduction is services?
sellers normally have an incentive to please customers, but they have more than they need or want
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What is a shortage?
when quantity demanded exceeds quantity supplied
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How do you calculate a shortage?
quantity demanded - quantity supplied
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What is the relationship between a controlled price and a market equilibrium price?
the lower the controlled price is compared to the market equilibrium price, the larger the shortage
9
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Price controls eliminate competition: true or false
False
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How do you calculate deadweight loss?
lost consumer surplus + lost producer surplus
11
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What do price controls do?
distort signals and eliminate incentives
12
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In a free market, what happens to the supply of goods?
it's bought by demanders with the highest willingness to pay
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In a market with a price ceiling, what happens to the supply of goods?
the demanders with the highest willingness to pay can't signal their demands and the suppliers don't have an incentive to supply
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Short run supply curves are what...
inelastic
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Long run supply curves are what...
elastic
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What can rent regulation do?
can protect tenants from sharp increases in rent, but it still allows prices to rise or fall in response to the market
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When are rent freezes put into place?
when rents are rising
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Where does controlled rent usually fall?
below the market equilibrium rent
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What is a command economy?
an economy with permanent, universal price controls
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What does minimum wage do?
creates unemployment