Microeconomics Chapter 5: Price Controls and Quotas

Vocabulary flashcards covering core terms, definitions, and concepts related to price controls, quotas, and market interventions from Chapter 5.

Price controls

Legal restrictions on how high or low a market price may go.

Price ceiling

The maximum price sellers are allowed to charge for a good or service.

Price floor

The minimum price buyers are required to pay for a good or service.

Deadweight loss

The loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity.

Inefficient allocation to consumers

A form of inefficiency caused by price ceilings where people who want the good badly and are willing to pay a high price don't get it, and those who care relatively little about the good and are only willing to pay a low price do get it.

Wasted resources

A form of inefficiency in which people expend money, effort, and time to cope with the shortages caused by a price ceiling.

Inefficiently low quality

A form of inefficiency caused by price ceilings where sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price.

Black market

A market in which goods or services are bought and sold illegally, either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.

Minimum wage

A legal floor on the wage rate, which is the market price of labour.

Inefficient allocation of sales among sellers

A form of inefficiency resulting from price floors where sellers who are willing to sell at the lowest price are not always those who manage to sell the good.

Inefficiently high quality

A form of inefficiency caused by price floors where sellers offer high-quality goods at a high price even though buyers would prefer a lower quality at a lower price.

Quantity control

An upper limit on the quantity of some good that can be bought or sold; also referred to as a quota.

Quota limit

The total amount of a good that can be legally transacted under a quantity control system.

Licence

A permit that gives its owner the right to supply a good under a quantity control system.

Demand price

The price at which consumers will demand a given quota quantity.

Supply price

The price at which producers will supply a given quota quantity.

Wedge

The difference between the demand price and the supply price of a good created by a quota; equal to the quota rent.

Quota rent

The earnings that accrue to a licence-holder from ownership of the right to sell the good, equal to the market price of the licence when licences are traded.