Economic Principles of Price Policies and Elasticity

These flashcards cover the key concepts related to price policies, elasticity, and market equilibrium based on the lecture notes.

Price Ceiling

A maximum price set by the government, which must be lower than the market equilibrium price, aimed at helping consumers.

Price Floor

A minimum price set by the government, which must be above the market equilibrium price, aimed at helping suppliers.

Shortage

A situation where the quantity supplied is less than the quantity demanded at a certain price, often due to a price ceiling.

Equilibrium

The point where quantity supplied equals quantity demanded, leading to a stable market price.

Determinants of Demand

Factors that cause the demand curve to shift, such as consumer income, tastes, the price of substitutes, and complements.

Elasticity

The responsiveness of quantity demanded or supplied to changes in price or income.

Cross Elasticity of Demand

Measures how much the quantity demanded of a good changes in response to a change in the price of another good.

Income Elasticity of Demand

Measures how much the quantity demanded of a good changes in response to a change in consumer income.

Allocative Efficiency

Occurs when resources are distributed in such a way that maximizes consumer and producer surplus, typically at the equilibrium point.

Tax Incidence

The distribution of the tax burden between consumers and producers, influenced by the elasticity of demand and supply.