Effects of Government Interventions in Markets

Rent Control

A regulation that limits how much landlords can charge for rent to make housing more affordable.

Deadweight Loss (DWL)

A loss of economic efficiency when the equilibrium outcome is not achievable or not achieved, often due to rent control or taxation.

Minimum Wage

The lowest amount that workers can be paid legally for their labor.

Price Floor

A minimum price set above the equilibrium price, leading to surpluses in the market.

Binding Price Ceiling

A maximum price set below the equilibrium price, resulting in a shortage of goods.

Non-Binding Price Floor

A minimum price set below the equilibrium price, which does not affect the market outcome.

Quota

A government-imposed limit on the amount of a specific good that can be produced or sold.

Market Inefficiency

A situation where the allocation of resources does not maximize total surplus.

Tax Wedge

The difference between the price buyers pay and the price sellers receive due to taxation.

Perfectly Inelastic Demand

Demand in which consumers will buy the same amount regardless of price changes.

Perfectly Elastic Demand

Demand in which consumers will not buy if the price increases at all, impacting producers with tax burdens.

Surplus of Goods

A situation where quantity supplied exceeds quantity demanded, often caused by price floors.

Shortage of Goods

A situation where quantity demanded exceeds quantity supplied, often caused by price ceilings.

Lost Potential Surplus

The value of trades that no longer occur due to factors such as taxation, leading to deadweight loss.

Economic Efficiency

A state in which all potential trades or transactions that could benefit both buyers and sellers occur.