Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Micro: Chapter 5
Test 2
| Term | Definition |
|---|---|
| efficient, but not fair | really high rent; no minimal wage |
| fair, but not efficient | everybody having a living wage job |
| property rights | ability to buy/sell something; legal right to do so |
| economic signals | prices; reevaluate whether you want to sell/buy |
| prices as economic signals | tells the seller whether selling is a good idea (is price greater than cost?); tells buy whether buying is a good idea (is wtp greater than price?); sometimes price fails (asymmetric information) |
| what can make markets fail? | market power; externalities; public goods / common resources (like public parks); private information (knowledge of buyer/seller not equal) |
| partial equilibrium effects | impact on just one market; what we're referring to with price ceilings, price floors, and quantity controls (quotas) |
| price controls | legal restrictions on how high (price ceilings) or how low (price floors) a market price may go; assumption that markets in question are efficient before price controls are imposed |
| price ceilings | upper limit on prices; rare, but still exists (rent control); can also be used to prevent limited group from gaining large profits in times of unexpected change (hurricane insurance, water after natural disaster) |
| 4 reasons for inefficiencies in price ceilings | 1. reduces quantity; 2. misallocation; 3. wasted time/effort; 4. low quality appartments |
| At price below equilibrium, _____ than efficient number of apartment transactions occur | fewer |
| Deadweight loss (DWL) | loss in surplus that occurs when something puts us at a non-efficient quantity; loss to society in that it is a reduction in the total surplus |
| two types of surplus that vanish in the DWL | demand: people w/WTP above old price that no longer buy bc quantity is not enough; supply: people with costs below old price that no longer sell |
| inefficient allocation to consumers | some people who want the good badly and are willing to pay a high price don't get it, and some who care relatively less about the good and are only willing to pay a low price do get it; people get the apartments through luck or personal connections |
| wasted resources | 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; landlords have no incentive to improve conditions (can't raise rents to cover repair costs) |
| black markets | market in which goods are bought/sold illegally - either because it's illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling |
| Does anyone gain from a price ceiling? | Consumer surplus of certain people who can buy; only some consumers benefit, everyone else loses |
| Why are there still price ceilings? | someone is winning; people fear the unknown; people don't understand the consequences |
| price floors | price of commodity can't fall below some level; common example is minimum wage law; are binding if they exists above equilibrium |
| minimum wage | workers are the supply curve (labor is the good and the workers supply it) |
| inefficiencies (5) caused by price floors | 1. low quantity; 2. inefficient allocation; 3. wasted resources; 4. unnecessarily high quality; 5. illegal transactions |
| inefficiently low quantity | it raises the price of a good to consumers which reduces the quantity of that good demanded; creates DWL |
| DWL (price floor) | loss from transactions being away from equilibrium; reduced transactions bc limited by quantity demanded (higher prices so less demand); height = decrease in transactions; base = delta price |
| inefficient allocation among sellers | those who would be willing to sell the good at the lowest price are not always those who actually manage to sell it |
| wasted resources | wasted time and effort; need to spend time waiting/competing for limited job spots |
| inefficient high quality | sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price; can't compete based on price beyond a certain point, so must compete by raising quality of good |
| Why are floor prices around | some sellers win big; policy makers don't understand markets (or if they do, politics gets in the way); equity issues |
| binding ceilings/floors | actually constrains market behavior; binding ceiling is one below equilibrium; binding floor is one above equilibrium; the price control has no effect if this isn't the case |
| quotas | upper limit on the quantity of some good that can be bought or sold; distorts market outcomes by restricting transactions (done thru systems like licenses, taxi medallions, etc); still causes DWL (moves us away from efficient outcome) |
| Are all quotas binding? | binding if quantity is below that of the equilibrium quantity |
| consequences of quotas | DWL (anytime there's a difference between the seller price and the buyer price, there's surplus that is being left on the table); black market problems |
Created by:
nicook
Popular Economics sets