Deadweight loss occurs in
A)a price floor but not a price ceiling.
B)a price ceiling but not a price floor.
C)both a price floor and a price ceiling.
D)neither a price floor nor a price ceiling.
E)market equilibrium.

Question

Quizplus · Accepted Answer

Deadweight loss occurs in both a price floor and a price ceiling. In a price floor, the minimum price set by the government is above the equilibrium price, which often results in an excess supply of the product. This excess supply creates a deadweight loss because it represents a value that could have been produced and consumed but was not due to the price floor. In a price ceiling, the maximum price set by the government is below the equilibrium price, which results in an excess demand for the product. This excess demand also creates a deadweight loss because some potential buyers will be unable to purchase the product at the artificially low price.

Deadweight Loss Occurs in