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01:220:102 (14)
Chapter 5

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Department
Economics
Course
01:220:102
Professor
Thomas Prusa
Semester
Fall

Description
Chapter 5- The Market Strikes Back 5-1  Price controls- legal restrictions on how high or low a market price may go  Price ceiling- maximum price sellers are allowed to charge for a good or service  Price floor- minimum price buyers are required to pay for a good or service  Deadweight loss- loss in total surplus that occurs whenever an action or policy reduces the quantity transacted below the efficient market equilibrium quantity  Price ceilings often lead to inefficiency in the form of o Inefficient allocation to consumers  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 o Inefficiency in the form of wasted resources  People expend money, effort, and time to cope with the shortages caused by the price ceiling o Inefficiency in that the goods being offered are of inefficiently low quantity  Sellers offer low-quality goods at a low price even though buyers would prefer a higher quantity at a higher price  Price ceilings often lead to inefficiency in the form of  Black market – market in which goods or services are bought and sold illegally- either because it is illegal to sell them at all o
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