consumer surplus, the benefit from being able to purchase a good or a

service.
producer surplus, shows the benefit sellers receive from being able to sell a
good.
price ceiling keeping the price in a market below its equilibrium level.
price floor keeping the price in a market above its equilibrium level.
A consumers willingness to pay for a good is the maximum price at which he
or she would buy that good.
Individual consumer surplus net gain equal to the difference between the
buyers willingness to pay and the price paid.
Deadweight loss, a key concept in economics, is encountered whenever an
action or a policy leads to a reduction in the quantity transacted below the
efficient market equilibrium quantity.
Product surpluses induced by price floors cause inefficiency in all of the
following ways: they flood the market with available goods where the price
floor is above the equilibrium price and below any buyer's willingness-to-pay.
they lead to frustrated sellers and buyers as the quantity transacted reduces
to below the efficient market equilibrium quantity.
they lead to frustrated sellers and buyers as the quantity transacted reduces
to below the efficient market equilibrium quantity.
they lead to frustrated sellers with overstocked shelves.
they lead to frustrated sellers with overstocked shelves.
EXCEPT: they lead to misallocation of goods among would-be buyers.

Who stands to

lose the most surplus as the price ceiling drops? At a price point of $800 and
below, what will happen to the number of transactions taking place?

producers; the number of transactions will have fully diminishedthere will be no

transactions.

Price ceilings are often imposed because they benefit some influential buyers of

a good, and price floors are often imposed because they benefit some influential
sellers.
If the equilibrium price of labor is $6.00 per hour and the government imposes a

price floor (minimum wage) of $7.00 per hour in the interest of reducing poverty,
what is the most likely result in the market for labor?
At the new minimum wage, the quantity of labor supplied by workers will increase

and the quantity of labor demanded by employers will decrease.

Workers will be more willing to work at the higher wage but employers will be less

likely to hire which will create a surplus or unemployment.

Any shortage induced by price controls can be seriously harmful because it will

lead to inefficiency and some potential gains from trade go unrealized. This loss
to society is called: the deadweight loss.
A quota is a mechanism by which the government regulates the quantity of a

good or service that can be bought and sold. A license gives its owner the right to
supply a good.
The market-driven equilibrium price for an apartment in your city is $1,800 per
month when your local government imposes rent control. The rent cap is set at
$1,600 per month; likely effects on the rental market will include all of the
following.
- the quantity of apartments supplied by landowners will decrease, causing a
shortage.
-at the imposed price of $1,600 per month, the number of willing tenants will
increase and the number of available apartments will decrease, resulting in a
shortage.
-reduces the quantity supplied below the market equilibrium quantity, leading to a

deadweight loss.
EXCEPT: the quantity demanded by tenants will decrease, causing a surplus of

apartments.
Government intervention (and taxes) throw in a wedge between demand and

supply prices of a given quantity. The result is a gap between them constitutes a
the deadweight loss, a total loss to society from lost opportunity.
A binding price floor will always lead to the following conditions
- a reduction in the quantity transacted.

a product surplus.
an increase in supply that exceeds demand
EXCEPT: a rise in the quantity transacted resulting in gains from trade.