Flashcards on Government Intervention: Price Controls, Taxes, Subsidies
Government Intervention: Price Controls, Taxes, Subsidies Explained
Tap to flip · Swipe to navigate
Price controls
16 cards
Card 1
Question: What are price controls and why are they usually enacted?
Answer: Price controls are government limits on prices (ceilings or floors) usually enacted when policymakers believe the market price is unfair to buyers or
Card 2
Question: Define a price ceiling.
Answer: A price ceiling is a legal maximum on the price at which a good can be sold.
Card 3
Question: Define a price floor.
Answer: A price floor is a legal minimum on the price at which a good can be sold.
Card 4
Question: What is the typical government objective when imposing price controls?
Answer: To influence market outcomes that are viewed as unfair even if the free-market equilibrium is efficient.
Card 5
Question: What happens in a market when a price floor is not binding?
Answer: If a price floor is not binding, it lies below the equilibrium price and has no effect on the market outcome.
Card 6
Question: What happens in a market when a price floor is binding?
Answer: A binding price floor lies above the equilibrium price, preventing the market from reaching equilibrium and typically causing excess supply (surplus).
Card 7
Question: What is a price ceiling that is not binding?
Answer: A price ceiling set above the equilibrium price; it does not affect the market outcome.
Card 8
Question: What happens when a price ceiling is binding?
Answer: It is set below the equilibrium price and leads to a shortage.
Card 9
Question: What is a price floor that is not binding?
Answer: A price floor set below the equilibrium price; it does not affect the market outcome.
Card 10
Question: What happens when a price floor is binding?
Answer: It is set above the equilibrium price and leads to a surplus because quantity supplied exceeds quantity demanded (QS > QD).