Price Controls: Theory, Winners, and Losers

These flashcards cover key terms and concepts related to price controls, including definitions and implications of price ceilings and floors.

Price Controls

Government-mandated limits on the prices that can be charged for goods and services.

Price Ceiling

A legal maximum price for a product set by the government to prevent prices from rising above a certain level.

Binding Price Ceiling

A price ceiling that is set below the market equilibrium price and affects market outcomes, leading to shortages.

Non-Binding Price Ceiling

A price ceiling that is set above the market equilibrium price, meaning it does not affect market outcomes.

Rent Control

A type of price ceiling that limits the amount landlords can charge for renting out property.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay; can increase under price ceilings.

Producer Surplus

The difference between what producers are willing to accept for their goods and what they actually receive; tends to decrease under price ceilings.

Deadweight Loss

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved due to price controls.

Price Floor

A legal minimum price for a product, set to ensure that prices do not fall below a certain level.

Minimum Wage

A type of price floor that sets the lowest legal wage that can be paid to workers, which can create unemployment.

Search Costs

The costs incurred by consumers in searching for goods or services, which can increase due to price ceilings.

Discrimination by Landlords

Economic decision-making by landlords based on observable characteristics of tenants, encouraged under rent control.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied in a market.