Supply, Demand, and Government Policies

These flashcards cover key concepts from the lecture on supply, demand, and government policies, focusing on price controls, taxation, and market outcomes.

Price Ceiling

A legal maximum on the price of a good or service, such as rent control. It can create shortages when set below equilibrium.

Price Floor

A legal minimum on the price of a good or service, such as minimum wage. It can create surpluses when set above equilibrium.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare, indicating how the burden of the tax is shared among different participants.

Binding Price Ceiling

A price ceiling that is set below the equilibrium price, causing a shortage in the market.

Tax Wedge

The difference between the price buyers pay and the price sellers receive due to a tax, affecting market equilibrium.

Rationing Mechanisms

Methods used to allocate scarce resources when there is a shortage, such as long lines or seller discrimination.

Market Equilibrium

The point where the supply of a good matches demand for that good, resulting in an efficient allocation of resources.

Elasticity

A measure of how much the quantity demanded or supplied of a good changes in response to a change in price.

Surplus

A situation that occurs when the quantity supplied exceeds the quantity demanded at a given price, often caused by a price floor.

Shortage

A situation that occurs when the quantity demanded exceeds the quantity supplied at a given price, often caused by a price ceiling.

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved, often due to taxes.

Minimum Wage

The lowest wage permitted by law or by a special agreement, impacting low-wage workers and potentially leading to unemployment.

Rent Control

A government-imposed limit on the rent landlords can charge, aiming to keep housing affordable but can lead to decreased housing supply.