AP Economics Chapter 6-7

Created Oct 23, 2013
by kehanchen
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Side ASide B
price ceiling
the legislated maximum of price
price floor
the legislated minimum of price
binding& not binding
binding- when the price ceiling or price floor has effect on the market not binding-when the...
When the government imposes a binding price ceiling on a competitive market
a shortage of the good arises, and sellers must ration the scarce goods among the large number...
Two factors of inefficiency caused by price celing
1.long lines waste buyers' time 2.Discrimination according to seller bias(the good does...
rent control
places a ceiling on rents that landlords may charge their tenants.
the effect of binding price floor and binding price ceiling
binding price ceiling causes shortage binding price floor causes surplus
long run effect of rent control
1.supply decreases because landlords are less willing to offer more  apartments or...
minimum-wage
laws dictate the lowest price for labor that any employer may pay
the impact of minimum-wage
Highly skilled and experienced workers are not affected because their equilibrium wages are...
long-term effect of minimum-wage
1.Company hires less workers 2. Encourage teenagers to drop out of school 3. Prevent some...
wage subsidies's positive and negative effect
Positive:Won't hurt those they are trying to help in long term. Negative: Cost the government...
which term refers to how the burden of a tax is distributed among the various people who make...
tax incidence
tax wedge
the difference between the price buyers paid and the price sellers receive
elasticity and tax incidence
a tax burden falls more heavily on the side of the market that is less elastic(more vertical)
Chapter 7
Consumers, producers, and the efficiency of markets
willingness to pay
measures how much that buyer values the good
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for...
marginal buyer
the buyer who would leave the market first if the price were any higher
how to measure the consumer surplus in a market
the area below the demand curve and above the price measures the consumer surplus in a market
producer surplus
measures the benefit sellers receive from participating in a market
how to calculate producer surplus
the area above supply curve and below the price
total surplus
=consumer surplus+producer surplus =value to buyers-cost to sellers
If an allocation of resources maximizes total surplus, 
we say that the allocation exhibits efficiency
equility
concerns whether the various buyers and sellers in the market have a similar level of economic...
free markets
1.allocate the supply of goods to the buyers who value them most highly, as measured by their...
The equilibrium outcome is
an efficient allocation of resources
Policy of leaving well enough alone goes by the French expression:
laissez faire
laissez faire
allow them to do
In free market, what does the planner's job?
Adam Smith's invisible hand of the marketplace
market power
the ability to influence price can cause markets to be inefficient because it keeps the price...
externalities
side effects in market except the decisions of buyers and sellers
market failure
the inability of some unregulated markets to allocate resources efficiently example: market...


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