Supply, Demand, and Government Policies

These flashcards cover key concepts related to supply, demand, government policies, and market outcomes.

Price Ceiling

A legal maximum on the price at which a good can be sold.

Price Floor

A legal minimum on the price at which a good can be sold.

Binding Price Ceiling

A price ceiling set below the equilibrium price that causes a shortage.

Binding Price Floor

A price floor set above the equilibrium price that causes a surplus.

Tax Incidence

The manner in which the burden of a tax is shared among participants in a market.

Rental Price of Apartments at Equilibrium

$800, where supply meets demand without government intervention.

Market Outcomes with Price Ceilings

If a price ceiling is below equilibrium, it causes a shortage.

Market Outcomes with Price Floors

If a price floor is above equilibrium, it causes a surplus.

Shortage

Occurs when demand exceeds supply due to a binding price ceiling.

Surplus

Occurs when supply exceeds demand due to a binding price floor.

Elasticity of Supply

Refers to how much the quantity supplied responds to changes in price.

Elasticity of Demand

Refers to how much the quantity demanded responds to changes in price.

Tax on Buyers

Shifts the demand curve down by the amount of the tax, affecting equilibrium.

Tax on Sellers

Shifts the supply curve up by the amount of the tax, affecting equilibrium.

Minimum Wage Effect on Unemployment

A 10% increase in the minimum wage can raise teen unemployment by 1-3%.

Luxury Tax

A tax imposed on expensive goods, aiming to raise revenue from wealthier consumers.

Short-run Demand Elasticity

Refers to how sensitive demand is to price changes in the short term.

Long-run Supply Elasticity

Refers to how supply adjusts over time to price changes.

Government Intervention

Can sometimes improve market outcomes but may lead to unintended consequences.

Rent Control

An example of a price ceiling designed to keep rental prices affordable.

Minimum Wage Laws

An example of a price floor aimed at ensuring a base level of income for workers.