AP Microeconomics: Government Intervention, Elasticity, Taxes & Subsidies

Vocabulary practice flashcards covering AP Microeconomics concepts on government interventions, price ceilings, price floors, per-unit taxes, elasticity, total revenue, supply/demand shifters, subsidies, and deadweight loss.

Price Ceiling

A legal maximum price set by the government above which a good or service cannot be sold.

Binding Price Ceiling

A price ceiling set below the equilibrium price, resulting in a shortage ($QD > QS$), a decrease in quantity traded, an increase in consumer surplus, a decrease in producer surplus, and deadweight loss.

Price Floor

A legal minimum price set by the government below which a good or service cannot be sold.

Binding Price Floor

A price floor set above the equilibrium price, resulting in a surplus ($QS > QD$), a decrease in quantity traded, a decrease in consumer surplus, an increase in producer surplus, and deadweight loss.

Per-Unit Tax

increases the price buyers pay,

decreases the price sellers receive,

decreases overall quantity,

generates government revenue

causes deadweight loss.

Tax Revenue

The income collected by the government from a per-unit tax, calculated using the formula $\text{Tax Revenue} = \text{Tax per unit} \times \text{Quantity sold}$.

Subsidy

A government payment that encourages production or consumption,

which shifts producer supply right/down, decreases the buyer price,

increases the seller price, increases total quantity,

increases government spending

creates deadweight loss.

Deadweight Loss (DWL)

.waste

transactions that could have happened that no longer will after the intervention