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Price Floor
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is the lowest legal price a commodity can be sold at
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Price Ceiling
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is the highest legal price a commodity can be sold at
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Binding Price floor
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occurs when the government sets a required price on a good or goods at a price above equilibrium; SURPLUS
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Binding Price Ceiling
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occurs when the government sets a required price on a good or goods at a price below equilibrium; SHORTAGE
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likely consequences of rent controls when the price ceiling is binding.
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inefficient allocation of apartments, black markets, more subletting of apartments, reductions in apartment quality
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Suppose a state passes a minimum wage law which increases minimum wage from $5 an hour to $20 an hour. The equilibrium wage prior to the minimum wage hike was $10 an hour. Which of the following is likely to result from the minimum wage?
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Some employers and workers will agree on a wage less than $20 and not report the wages to the government; black market
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Steve decides not to rent out his second home since he is not allowed to set the rate above $1000 per month even though he knows he could find renters willing to pay much more.
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Price ceiling
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Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25 per hour.
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Price Floor
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NOT a characteristic of market equilibrium
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The amount produced and consumed is always the efficient amount.
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An example from the class notes: In places like Aspen, If wood-burning fireplaces and stoves are unregulated there will be too much smoke from an efficiency point of view: Aspen is a box canyon and the smoke has no where to go. The city government is consider requiring permits for wood-burning devices. Which of the following narratives is, in Edward\'s view, both correct and most generally informative?
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This is an example where a binding quota, achieved by requiring but limiting the number of permits, can increase efficiency
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Rent controls set a price ceiling below the equilibrium price, therefore:
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Quantity demanded exceeds the quantity supplied.
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A price ceilings that binds will impose unnecessary costs on society. These could include (a black market deceases the costs to society, it does not impose unnecessary costs)
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long lines to buy the product
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For low-skilled workers in the country of South Africa, supply for low-skilled workers is greater than demand. This could be caused by.
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The minimum wage set above the equilibrium wage.
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Ceteris Paribus, landlords of apartments that are effectively rent controlled(price ceiling
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false
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consider the demand and supply curves for low-skilled workers with the wage rate on the vertical axis. Now assume, as in most developed countries (including the U.S.) that the government has imposed a binding \"minimum wage.\" Choose statement about the effect of the minimum wage that is both correct and most informative.
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From an efficiency perspective, too few of the low skilled will work.
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