Ch 5 Part 1

Question 1

Price controls

Answer 1

Legal restrictions on how high or low a market price will go

Question 2

Price ceiling

Answer 2

Highest legal price for good to be sold for enforced by government to prevent prices from being too high

Question 3

When are price ceiling imposed?

Answer 3

During crisis such as war, harvest failures, natural disasters, etc

Question 4

What are the costs of price ceilings?

Answer 4

Shortages get worse over time

Inefficient allocation to consumers

Wasted resources

Inefficiently low quality

Creation of black markets

Question 5

Price floor

Answer 5

Lowest legal price a product can be sold at enforced by government to prevent prices from being too low

Question 6

Main reason for price floors in agriculture?

Answer 6

Provide steady stream of income for farmers

Secure some degree of domestic food supply

Question 7

Economic consequences of price floor

Answer 7

Unemployment increases

Market inefficiency

Benefit cut to existing employees

Increasing prices of general products and services

Barriers to those who look for minimum pay jobs

Question 8

Cost of price floors

Answer 8

Surplus of production

Inefficient allocation of sales among sellers

Inefficiently high quality

Illegal activity such as dumping