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Chapter 6: Government Actions in Market (pg. 127)

Definitions
Price Ceiling OR Price Cap – A regulation that makes it illegal to charge a price higher than a specified level. Rent Ceiling – A regulation that makes it illegal to charge a rent higher than a specified level. Search Activity – The time spent looking for someone with whom to do business. Black Market – An illegal market in which the equilibrium price exceeds the legally imposed price ceiling. Price Floor – A regulation that makes it illegal to trade at a price lower than a specified level. Minimum Wage – A regulation that makes the hiring of labor below a specified wage rate illegal. The lowest wage at which a firm may legally hire labor. Tax Incidence – The division of the burden of the tax between the buyer and the seller. Production Quotas – An upper limit to the quantity of a good that may be produced in a specified period. Subsidies – A payment made by the government to a producer.
Notes
Price Ceiling – A price ceiling set above the equilibrium price has no effect. – A price ceiling set below the equilibrium price has powerful effects on a market.
Rent Ceiling A rent ceiling set below the equilibrium rent creates:
– A housing shortage – Increased search activity – A black market