Global Economics - Price Controls and Tax Incidence

Flashcards covering key concepts from the lecture on price controls, market outcomes, and tax incidence.

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 that is below the equilibrium price, causing a shortage.

Non-Binding Price Ceiling

A price ceiling set above the equilibrium price, having no effect on market outcomes.

Binding Price Floor

A price floor that is above the equilibrium price, causing a surplus.

Non-Binding Price Floor

A price floor set below the equilibrium price, having no effect on market outcomes.

Tax Incidence

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

Effects of Price Ceilings

Causes a shortage, leading to inefficiencies like long lines and seller biases.

Earnings Inefficiency

Occurs due to sellers rationing scarce goods when a price ceiling is in place.

Minimum Wage

The lowest legal wage that can be paid to workers, aimed at helping low-income earners.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in price.

Elasticity of Supply

A measure of how much the quantity supplied of a good responds to a change in price.

Luxury Tax

A tax applied to luxury goods like yachts and jewelry, intending to raise revenue from wealthier consumers.

Surplus

A situation where the quantity supplied exceeds the quantity demanded.

Shortage

A situation where the quantity demanded exceeds the quantity supplied.

Public Project Funding

Government funding for infrastructure, education, and national defense, often raised through taxes.

Inefficient Rationing Mechanisms

Methods used by sellers to allocate goods when a binding price ceiling or floor is in effect.