Price Controls in Microeconomics

These flashcards cover key vocabulary and concepts related to price controls in microeconomics, including definitions for important terms and examples.

Price Control

A government-mandated price that imposes a legal maximum or minimum price in the market.

Price Ceiling

A legally established maximum price that sellers can charge for a good.

Price Floor

A legally established minimum price that sellers can charge for a good.

Deadweight Loss (DWL)

A cost to society created by economic inefficiency due to less of a good being consumed or sold.

Shortage

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Rent Control

A common example of a price ceiling, aimed at creating affordable housing.

Minimum Wage

A common example of a price floor, which establishes a lower limit on wages.

Economic Inefficiency

A situation where resources are not allocated in the most effective way due to price controls.

Market Equilibrium

The condition where the quantity demanded equals the quantity supplied at a specific price.

Binding Price Control

When the price control (ceiling or floor) affects market conditions, leading to shortages or surpluses.

Non-Binding Price Control

When the price control does not affect market conditions; prices can adjust freely.