Econ price controls

Vocabulary flashcards covering key terms from the lecture on price controls, efficiency, shortages, and rationing.

Consumer Surplus

Net benefit to consumers; difference between what consumers are willing to pay and what they actually pay.

Producer Surplus

Net benefit to producers; difference between price received and cost to produce.

Net Benefits to Society

Sum of consumer and producer surplus; total benefits from trade.

Market Clearing Price

Price at which quantity demanded equals quantity supplied; the equilibrium price.

Economic Efficiency

All mutual benefits from trade are exhausted; net benefits to society are maximized.

Price Ceiling

A maximum legal price that can be charged for a good; upper bound.

Price Floor

A minimum price that must be paid for a good; lower bound.

Binding

A price ceiling or floor that actually affects the market and prevents it from reaching equilibrium.

Non-Binding

A price ceiling or floor that does not affect the market because the market price would not reach the bound.

Shortage

When quantity demanded exceeds quantity supplied due to a binding price ceiling or other constraint.

Surplus

When quantity supplied exceeds quantity demanded.

Deadweight Loss

Lost total surplus that occurs when not at the socially efficient quantity; net benefits forgone.

Non-Price Rationing

Allocation methods used when price cannot clear the market (wait lists, queues, lotteries, favoritism).

Wait Time / Waiting in Line

Time costs incurred as a non-price rationing method to obtain scarce goods.

Transfer

Redistribution of welfare between groups caused by price controls (e.g., some gain while others lose).

Efficiency Wage

Paying above the market wage to boost productivity and reduce turnover.

Minimum Wage

A price floor for labor; the legal minimum wage.

Rent Control

A price ceiling on rents; limits how high rent can go.

Gasoline Price Ceiling (historical)

A binding price ceiling on gas that can cause shortages and lines (notably in the 1970s).

Persistent Shortage

A shortage that remains over time because the government prevents price from adjusting to market clearance.

Price as a Rationing Mechanism

Prices allocate scarce goods by signaling scarcity and guiding resources; they send efficiency signals.

Efficiency vs Equity

Efficiency concerns total net benefits; equity concerns how those benefits are distributed.

Wait Line Costs

Time and other costs paid by those waiting; non-price rationing consequences.

Lottery (Rationing Method)

Allocation by random draw; can be inequitable and unpredictable.

Favoritism / Discrimination (Rationing)

Non-price allocation based on preference; can be unethical and costly.

Minimum Wage Model: Lost Jobs

Higher wage reduces quantity of labor demanded, potentially causing unemployment.

Efficiency Wage Evidence

Firms may pay above market wages to improve productivity and reduce turnover.

Labor Market Roles

In wage contexts, firms are the demanders of labor and workers are the suppliers.

Q* (Socially Efficient Quantity)

Quantity at which net benefits are maximized; total welfare is highest.

Transfer vs Deadweight Loss (concepts)

Transfers are redistributions in welfare; deadweight loss is the loss of total welfare from distortion.