ECON 103: Price Controls, Price Floors, Price Ceilings, and Rent Control

Vocabulary flashcards covering the economic principles, definitions, models, and real-world consequences of price controls, price floors, price ceilings, minimum wages, and rent controls from ECON 103.

Price Control

A law that regulates the price of some good or service.

Price Floor

A minimum legal price established by law that prohibits sellers from charging less than the floor.

Price Ceiling

A maximum legal price established by law that prohibits sellers from charging more than the ceiling.

Binding Price Floor

A price floor set above the equilibrium price ($P_f > P^*$) that prevents the price from falling to clear the market, resulting in an excess quantity supplied.

Binding Price Ceiling

A price ceiling set below the equilibrium price ($P_c < P^*$) that prevents the price from rising to clear the market, resulting in an excess quantity demanded.

Surplus

A market imbalance occurring under a price floor where quantity supplied exceeds quantity demanded ($Q_s > Q_d$) because sellers cannot legally lower prices to clear the excess.

Shortage

A market imbalance occurring under a price ceiling where quantity demanded exceeds quantity supplied ($Q_d > Q_s$) because buyers cannot legally bid prices upward to eliminate excess demand.

Deadweight Loss

The reduction in total economic surplus and lost gains from trade caused by a market distortion, representing mutually beneficial exchanges that never occur because transactions at lower or higher market-clearing prices are illegal.

Quality Waste

A consequence of a price floor where sellers, unable to compete on price, compete on alternative margins by providing costly quality increases and amenities that buyers would not otherwise pay for.

Civil Aeronautics Board (CAB)

The federal agency that extensively regulated U.S. interstate airlines from $1938$ to $1978$, setting fares above equilibrium and causing airlines to engage in quality waste through luxury services such as gourmet meals and fine china.

Minimum Wage

A legal price floor in the labor market ($W_{\text{min}} > W^*$) that makes it illegal for employers to hire workers for less than the mandated wage rate.

Unemployment (Minimum Wage Model)

A surplus of labor ($Q_s > Q_d$) created when a minimum wage sits above the equilibrium wage, resulting in more individuals willing to work than employers are willing to hire.

Margins of Adjustment (Labor Market)

Alternative ways employers respond to a fixed minimum wage beyond direct wage payment, including cutting on-the-job training, reducing non-wage perks, lowering workplace amenities, shortening work hours, and automating jobs.

Raise the Wage Act of 2021 (CBO Report)

A Congressional Budget Office study estimating that a phased-in $\$15$ federal minimum wage by $2025$ would raise pay for $17\text{ million}$ workers and reduce poverty by $0.9\text{ million}$, while causing $1.4\text{ million}$ lost jobs and adding $\$54\text{ billion}$ to federal deficits from $2021$ to $2031$.

Reductions in Quality (Price Ceilings)

A mechanism by which sellers circumvent a price ceiling by cutting the quality of the product or service instead of raising the sticker price, effectively making buyers pay the same price for an inferior good.

Search Costs and Line Waiting

Non-price costs borne by buyers under a price ceiling where the shortage forces consumers to spend valuable time queuing or searching until the total cost (money price plus time value) equals their willingness to pay.

Stabilization Act of 1942

Legislation enforced by the National War Labor Board during World War II that capped employee wages to fight inflation, prompting firms facing labor shortages to compete for workers using fringe benefits such as employer health insurance and pensions.

Rent Control

A price ceiling placed on rental housing that sets a legal maximum rent landlords are permitted to charge tenants.

Long-Run Elasticity in Rent Control

The economic tendency for housing shortages to worsen over time under rent control because housing supply is inelastic in the short run but becomes more elastic in the long run as owners reduce maintenance, convert units to condominiums, and construct fewer new buildings.

Non-Price Rationing

Alternative rationing methods used to allocate goods when prices cannot legally adjust to clear a shortage, including waiting lists, personal connections, under-the-table bribes, and mandatory key fees.