Effects of Government Intervention In Markets
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Last updated 2:40 AM on 1/14/23
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17 Terms
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What are the price and quantity controls?
Price ceiling, price floor, and quota
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Price Ceiling
A legal upper limit (max) on the price that can be changed in the market
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Price Floor
A legal lower limit (min) on the price that can be changed in the market
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Quota
A restriction on the qty that can be sold in a market
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Deadweight loss
A loss in economic efficiency, lost consumer and producer surplus, represents a lack of allocative efficiency
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When does deadweight loss occur?
It occurs when a market is not at competitive equilibrium
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What causes deadweight loss?
Government intervention in otherwise efficient markets
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Price Floor Graph
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Qs-Qd=
Surplus
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Price Ceiling Graph
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Qd-Qs=
Shortage
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Tax
A financial charge a government imposes in a market
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Excise Tax
A per-unit tax
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Subsidy
A financial benefit given by a government to an individual or a business
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Excise tax graph
Pd= Price buyer pays
Ps= Price seller receives
Pd-Ps=Per unit tax
Ps= Price seller receives
Pd-Ps=Per unit tax
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Subsidy Graph
Pd= Price buyer pays
Ps= Price seller receives
Ps-Pd= Per unit subsidy
Ps= Price seller receives
Ps-Pd= Per unit subsidy
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Tax Burden in the Market
