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Microeconomics Module 10
Terms in this set (13)
legal restrictions on how high or low a market price may go
A legal maximum on the price at which a good can be sold
Typical during a crisis
A legal minimum on the price at which a good can be sold
How price ceilings cause inefficiency
1. Inefficiently low quantity
2. Inefficient allocation to customers
3. Wasted resources
4. Inefficiently low quality
5. Black markets
the fall in total surplus that results from a market distortion, such as a tax
inefficient allocation to consumers
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 relatively low price do get it
people expend money, effort, and time to cope with the shortages caused by the price ceiling
inefficiently low quality
sellers offer low quality goods at a low price even though buyers would prefer a higher quality at a higher price
a market in which goods are sold illegally-either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling
a minimum price that an employer can pay a worker for an hour of labor
how a price floor causes inefficiency
It creates deadweight loss by reducing the quantity transacted to below the efficient level.
It leads to an inefficient allocation of sales among sellers.
It leads to a waste of resources.
It leads to sellers providing an inefficiently high-quality level.
Inefficient allocation of sales among sellers
sellers who are willing to sell at the lowest price are unable to make sales while sales go to sellers who are only willing to sell at a higher price
Inefficiently high quality
sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price
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