Chapter 6 Flashcards
To study for Midterm 1
1
Q
A price ceiling is
A
the maximum price allowed by law.
2
Q
Price ceiling will always create (name 3):
A
- shortages
- reductions in product quality
- Wasteful lines & other search costs
- A loss in gains from trade (deadweight loss)
- A misallocation of resources
3
Q
What are some consequences of rent control?
A
In the long run, there is lower supply, reduction in product quality, and under-the-table payments.
4
Q
Who wins when rent control is imposed?
A
The people who are in the building when rent control is imposed WIN.
5
Q
Who wins in a price ceiling?
A
The people who find the products and buy them.
6
Q
A price floor is
A
a minimum price allowed by law
7
Q
A price floor creates (name 2)
A
- Surpluses
- Lost gains from trade (deadweight loss)
- Wasteful increases in quality
- A misallocation of resources
8
Q
Who wins when a price floor is imposed?
A
The people who have a job WIN.
9
Q
The deadweight loss of a price floor is
A
everyone who wants to be hired but can’t be.
10
Q
Who pays the bigger tax, Buyers or Sellers?
A
The more inelastic side pays the tax.
