Microeconomics Chapter 5: Price Controls and Quotas: Meddling with Markets

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Price Controls
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Legal restrictions on how high or low a market price may go.
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Price Ceiling
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The maximum price sellers are allowed to charge for a good or service; a form of price control.
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Price Floor
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The minimum price buyers are required to pay for a good or service; a form of price control.
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Inefficient Allocation to Consumers
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A form of inefficiency in which people who want a good badly and are willing to pay a higher price don’t get it, and those who care relatively little about the good and are only willing to pay a low price do get it; often a result of a price ceiling.
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Wasted Resources
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A form of inefficiency in which people expend money, effort, and time to cope with the shortages caused by a price ceiling.
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Inefficient Low Quality
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A form of inefficiency in which sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price; often a result of a price ceiling.
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Black Markets
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A market in which goods or services are bought and sold illegally, either because it is illegal to sell them at all or because the price charged are legally prohibited by a price ceiling.
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Minimum Wage
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A legal floor on the wage rate. The wage rate is the market price of labor.
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Inefficient Allocation of Sales Among Sellers
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A form of inefficiency in which sellers who would be willing to sell a good at the lowest price are not always those who actually manage to sell it; often the result of a price floor.
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Inefficiently High Quality
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A form of inefficiency in which sellers offer high-quality goods at a higher price even though buyers would prefer a lower quality at a lower price; often the result of a price floor.
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Quality Control
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An upper limit, set by the government, on the quantity of some good that can be bought or sold; also referred to as a quota.
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Quota
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An upper limit, set be the government, on the quantity of some good that can be bought or sold; also referred to as a quantity control.
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Quota Limit
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The total amount of a good under a quota or quantity control that can be legally transacted.
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License
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The right, conferred by the government, to supply a good.
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Demand Price
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The price of a given quantity at which consumers will demand that quantity.
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Supply Price
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The price of a given quantity at which producers will supply that quantity.
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Wedge
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The difference between the demand price of the quantity transacted and the supply price of the quantity transacted for a good when the supply of the good is legally restricted. Often created by a quantity control, or quota.
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Quota Rent
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The difference between the demand price and the supply price at the quota limit; this difference, the earnings that accrue to the license holder, is equal to the market price of the license when the license is traded.

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