ECON 1201 Chapter Notes - Chapter 8: Price Ceiling, Price Controls, Deadweight Loss

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ECON 1201 Full Course Notes

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1971 president nixon passed laws to freeze prices of almost all goods and wages. Price freezes didn"t have an immediate effect because the prizes were frozen at around market prices but the economy is always changing. Laws making it illegal for prices to move above a maximum price. Specifically when the legally maximum charged price is below the market price. When prices are below market price, quantity demanded > quantity supplied. Measured as: shortage = quantity demanded (at controlled price) - The lower the controlled price in comparison to the market/equilibrium price = larger shortage. Ordinarily an increased demand would increase price therefore an incentive to produce more, but with price ceilings, providers cannot produce more and therefore lead to shortages. To accommodate this, they try to make their goods at lesser quality to lower production gods to increase quantity. Books printed on lower quality paper, cars painted with fewer coats, newspapers used a smaller font size, etc.

Related Questions

Question 1

During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market?

		$30
		$35
		$40
		Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

		A sale price with a limit on the quantity you can purchase.
		Rent-controlled apartments
		Predatory pricing designed to put a competitor out of business.
		The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		The Affordable Care Act
		Minimum wage laws
		Rent control laws
		Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

		A minimum price consumers are willing to pay.
		A minimum price allowed by law.
		A maximum price allowed by law.
		A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

		It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.
		Paying with time reduces the value of money, and prevents valuable trades from occurring.
		Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.
		Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		Decreases in product quality.
		A shortage of the good.

ECON 1201 Chapter Notes - Chapter 8: Price Ceiling, Price Controls, Deadweight Loss

ECON 1201 Full Course Notes

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