Supply, Demand & Government Policies: Price Controls and Taxes

These flashcards cover key terms and concepts in supply, demand, government policies, price controls, and taxes discussed in the lecture.

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 Constraint

A price ceiling or floor that is set below or above the equilibrium price, causing shortages or surpluses.

Rent Control

A price ceiling imposed by local government to make housing more affordable for lower-income families.

Shortage

A situation where quantity demanded exceeds quantity supplied, often resulting from a price ceiling.

Surplus

A situation where quantity supplied exceeds quantity demanded, often resulting from a price floor.

Minimum Wage

The lowest price for labor that any employer may pay, intended to ensure a minimally adequate standard of living.

Tax Incidence

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

Elasticity

A measure of how much the supply or demand of a good responds to changes in price.

Inefficiency of Price Controls

Price ceilings and floors can lead to market distortions and unintended consequences, reducing overall market efficiency.

Rationing Mechanisms

Methods used to allocate scarce goods when a price ceiling creates a shortage, such as long lines or discrimination.

Adverse Effects of Rent Control

In the short run, results in small shortages; in the long run, leads to larger shortages and reduced quality of housing.

Progressive Tax

A tax system where the tax rate increases as the taxable amount increases, often seen in income taxes.

Taxes on Sellers

Taxes that shift the supply curve left, raising prices and reducing quantities available in the market.

Taxes on Buyers

Taxes that shift the demand curve left, lowering the equilibrium price and quantity.

Luxury Tax

A tax imposed on luxury goods, intended to generate revenue from consumers who can afford such items.