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20 terms

Ch. 5, The Market Strikes Back (Price and Quantity Controls)

Part 2: Supply and Demand UIC ECON 120: Principles of Microeconomics Summer Session 2012
STUDY
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Price controls
Lega restrictions on how high or low market price may go
Price ceiling
Upper limit on price
Price floor
Lower limit on price
Deadweight loss
Loss in total surplus that occurs whenever action or policy reduces quantity transacted below equilibrium quantity
Transfer of surplus
Loss in surplus to one person that is then moved into someone else's gain
Inefficient allocation to consumers
Consequence of price ceilings; people who want good badly and are willing to pay high price don't get it, and those who care relatively little about good and are only willing to pay low price do get it
Wasted resources
Buyers and sellers expend resources to cope with shortages and surpluses
Inefficiently low quality
Consequence of price ceilings; sellers offer low-quality goods at low price even though buyers would prefer higher quality at higher price
Black markets
Market in which goods are bought and sold illegally either because it is illegal to sell them or because prices charged are legally prohibited
Minimum wage
Legal floor on wage rate, the market price of labor
Inefficient allocation of sales among sellers
Caused by price floors; those who would be willing to sell the good at lowest price are not always those who actually manage to sell it
Inefficiently high quality
Consequence of price floors; sellers offer high quality goods at high price, even though buyers would prefer lower quality at lower price
Quantity control
Upper limit on quantity of some good that can be ttransacted
Quota
Quantity control
Quota limit
Total amount of good that can be legally transacted
License
Gives its owner right to supply good
Demand price
Price at which consumers will demand given quantity
Supply price
Price at which suppliers will supply a given quantity
Wedge
Consequence of quantity control; difference between demand price and supply price at a given quantity; price paid by buyer is higher than price received by seller
Quota rent
Wedge; earnings that accrue to license-holder from ownership of right to sell good; equal to market price of license when licenses are traded