price controls
legal restrictions on how high or low a market price may go
price ceiling
a maximum price sellers are allowed to charge for a good or service
price floor
a minimum price buyers are required to pay for a good or service
deadweight loss
the loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity
loss to society
a reduction in total surplus as a result of deadweight, that accrues to no one as a gain
transfer of surplus
a loss in surplus to one person that then accrues as a gain to someone else
inefficient allocation to consumers
Stems from price ceilings. People who want the good badly and are willing to pay a high 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.
wasted resources
Stems from price ceilings. People expend money, effort, and time to cope with shortages caused by a price ceiling.
inefficiently low quality
Stems from price ceilings. Sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price.
black market
Stems from price ceilings. 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 prices charged are legally prohibited by a price ceiling.
minimum wage
a legal floor on the wage rate, which is the market price of labor
inefficiently low quantity
Stems from price floors. Because sellers can't sell more units of a good than buyers are willing to buy, a price floor reduces the quantity of a good bought and sold below the market equilibrium quantity and leads to a deadweight loss.
inefficient allocation of sales among sellers
Stems from price floors. 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
Stems from price floors. Surplus goes to waste from a lack of buyers.
inefficiently high quality
Stems from price floors. Sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price
illegal activity
Stems from price floors. Goods and services are sold black-market at a price lower than the price floor.
quantity control
Also known as quota. An upper limit on the quantity of some good that can be bought or sold.
quota limit
the total amount of a good that can be legally transacted
license
gives an owner a right to supply a good
demand price
the price at which consumers will demand a given quantity
supply price
the price at which suppliers will supply a given quantity
wedge
the difference between the demand price of a quantity transacted and the supply price of a quantity transacted
quota rent
the earnings that accrue to the license-holder from ownership of the right to sell the good; equal to the market price of the license when the licenses are traded