Scenario: Consider the following figure, which shows a competitive market. Suppose the government imposes a price ceiling policy of $2 on this market.

-Refer to the above scenario.After the imposition of this $2 price control policy,what is the amount of deadweight loss in the market?

Question

Scenario: Consider the following figure, which shows a competitive market. Suppose the government imposes a price ceiling policy of $2 on this market.
 
-Refer to the above scenario.After the imposition of this $2 price control policy,what is the amount of deadweight loss in the market?

Quizplus · Accepted Answer

The price ceiling of $2 is below the equilibrium price of $4, causing a shortage in the market. As a result, consumers are willing to buy quantity Qd1 at $2, while producers are only willing to supply quantity Qs1 at the same price. The deadweight loss is the value of the mutually beneficial transactions that do not occur due to the price ceiling, which is the area of the triangle formed by the intersection of the demand and supply curves, the price ceiling, and the quantity exchanged at the price ceiling. This triangle has a base of (Qd1-Qs1) and a height of $2, so its area is 0.5*(Qd1-Qs1)*$2=$10. Therefore, the amount of deadweight loss in the market is $10.

Scenario: Consider the Following Figure, Which Shows a Competitive Market