Economics: Price Controls Overview

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Rent-control laws dictate

only a maximum rent that landlords may charge tenants. (correct)

the exact rent that landlords must charge tenants.

only a minimum rent that landlords may charge tenants.

both a minimum rent and a maximum rent that landlords may charge tenants.

Minimum-wage laws dictate

only a minimum wage that firms may pay workers. (correct)

the exact wage that firms must pay workers.

both a minimum wage and a maximum wage that firms may pay workers.

only a maximum wage that firms may pay workers.

A price ceiling is

imposed to make sure everyone can earn a fair wage.

often imposed on markets in which “cutthroat competition" would prevail without a price ceiling.

a legal maximum on the price at which a good can be sold. (correct)

often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling.

If a price ceiling is binding, then

there will be a shortage in the market. Signup and view all the answers

If the government imposes a binding price ceiling on a market, then the price paid by buyers will

decrease, and the quantity sold in the market will decrease. Signup and view all the answers

To say that a price ceiling is binding is to say that the price ceiling

is set below the equilibrium price. Signup and view all the answers

The imposition of a binding price ceiling on a market causes

quantity demanded to be greater than quantity supplied. Signup and view all the answers

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

quantity demanded of physicals increases, and the quantity supplied of physicals decreases. Signup and view all the answers

Refer to Figure 6-1. A binding price ceiling is shown in

graph (b) only. Signup and view all the answers

A price floor is

a legal minimum on the price at which a good can be sold. Signup and view all the answers

If a price floor is not binding, then

the equilibrium price is above the price floor. Signup and view all the answers

If a nonbinding price floor is imposed on a market, then the

quantity sold in the market will stay the same. Signup and view all the answers

If a binding price floor is imposed on the pizza market, then

a surplus of pizza will develop. Signup and view all the answers

Refer to Figure 6-3. A government-imposed price of $6 in this market is an example of a

binding price floor that creates a surplus. Signup and view all the answers

Refer to Figure 6-5. Which of the following statements is not correct?

When the price is $6, there is a surplus of 8 units. Signup and view all the answers

Refer to Figure 6-8. When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2,

a shortage will occur at the new market price of P2. Signup and view all the answers

Refer to Figure 6-8. When the price ceiling is enforced in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is

less than Q3. Signup and view all the answers

Study Notes

Rent Control Laws

Rent control laws regulate the maximum rent landlords can charge tenants.
They often set a maximum rent, but not a minimum.

Minimum Wage Laws

Minimum wage laws dictate a minimum wage firms must pay workers.
They do not set maximum wages.

Price Ceilings

Price ceilings set a legal maximum price for a good.
They are often imposed when competition is cutthroat, or when sellers argue for an unfair outcome without this ceiling.
Binding price ceilings create shortages; the quantity demanded exceeds the quantity supplied.

Price Floors

Price floors set a legal minimum price for a good.
Often used when buyers argue the market outcome is unfair without a price floor.
Binding price floors create surpluses; quantity supplied exceeds the quantity demanded.

Binding Price Ceilings and Shortages

When a price ceiling is binding, it sets a maximum price below the equilibrium price.
This results in a shortage in the market.

Binding Price Floors and Surpluses

A binding price floor sets a minimum price above the equilibrium price.
This leads to a surplus in the market.

Non-Binding Price Ceilings and Floors

Non-binding price ceilings are set above the equilibrium price and don't affect the equilibrium.
Non-binding price floors are below the equilibrium price and don't affect the equilibrium.
Changes in supply and demand can affect the effectiveness of price controls.
Shifts in either supply or demand can create new market imbalances.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers key concepts in economics regarding price controls, including rent control laws, minimum wage laws, price ceilings, and price floors. Understand how these regulations impact supply and demand, and the consequences they create in the market.