Government Policies in the Supply/Demand Model

These flashcards cover key concepts related to government policies in the supply and demand model, including price ceilings, price floors, quantity regulations, and tax incidence.

Price Ceiling

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

Binding Price Ceiling

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

Non-Binding Price Ceiling

A price ceiling set above the market price, causing no effect on the market.

Price Floor

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

Binding Price Floor

A price floor that is set above the market price, leading to surplus.

Non-Binding Price Floor

A price floor set below the market price, causing no effect on the market.

Quantity Regulation

A legal minimum or maximum quantity that can be sold.

Mandate

A requirement to buy or sell a minimum amount.

Quota

A limit on the maximum quantity of a good that can be bought or sold.

Tax Incidence

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

Elasticity of Demand

A measure of how demand for a good changes in response to price changes.

Inelastic Demand

Demand that does not change significantly with price changes.

Impact of Taxes on Buyers

When a tax is levied on buyers, it decreases demand.

Impact of Taxes on Sellers

When a tax is levied on sellers, it decreases supply.