Unit 7 Flashcards Preview

Microeconomics Exam #2 > Unit 7 > Flashcards

Flashcards in Unit 7 Deck (14):
1

Three forms of market intervention:

price ceilings, price floors, and taxes

2

A price ceiling sets...

the highest price at which it is legal to trade a particular good or service

3

In order for a price ceiling to be binding,

it must be set below the market equilibrium price

4

If the price ceiling is greater or equal to the equilibrium price,

it will not affect the market outcome

5

A binding price ceiling...

results in a shortage

6

DWL:

loss in total surplus (TS) that results from an inefficient level of production

7

When a price ceiling is imposed on the market, producers lose for two reasons:

They lose because the price is lower and they lose because the quantity is lower

8

In order for the price floor to be binding,

it must be set above the market equilibrium price

9

Consumers both win and lose with a price ceiling:

They win because the price is lower and they lose because the quantity is lower.

10

If the price floor is set equal to or below the market equilibrium price,

it will not affect the market outcome

11

The imposition of a price floor on the market will increase the price and lower the quantity because...

consumers are not willing to buy as much of the product at the high price

12

With the surplus (excess supply), we can see that price floors are

not efficient.

13

When a price floor is imposed on the market, consumers lose for two reasons:

They lose because the price is higher and they lose because the quantity is lower.

14

Producers both win and lose with a price floor because:

They win because the price is higher and they lose because the quantity is lower.