Inefficiency of Price Floors and Price Ceilings

Now, let's attempt several practical problems related to price controls. Answer the "Try It" questions here.

Try It

Answer to Try It

    • The deadweight loss is $3,000
      Incorrect. The deadweight loss is the loss of consumer and producer surplus ­– the area to the right of the quantity produced after the price ceiling (1000) below the demand curve and above the supply curve. Loss of consumer surplus = (($5-$3)*(2000 lbs-1000))/2) = $1000. Loss of producer surplus = (($3-$2)*(2000 lbs-1000))/2) = $500. Total deadweight loss = $1500.
    • The deadweight loss is $1,500
      Correct. The deadweight loss is the loss of consumer and producer surplus ­– the area to the right of the quantity produced after the price ceiling (1000) below the demand curve and above the supply curve. Loss of consumer surplus = (($5-$3)*(2000 lbs-1000))/2) = $1000. Loss of producer surplus = (($3-$2)*(2000 lbs-1000))/2) = $500. Total deadweight loss = $1500.
    • The deadweight loss is $1,000
      Incorrect. The deadweight loss is the loss of consumer and producer surplus ­– the area to the right of the quantity produced after the price ceiling (1000) below the demand curve and above the supply curve. Loss of consumer surplus = (($5-$3)*(2000 lbs-1000))/2) = $1000. Loss of producer surplus = (($3-$2)*(2000 lbs-1000))/2) = $500. Total deadweight loss = $1500.