Effect of price ceiling on economic surplus: Difference between revisions
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In a world without the price ceiling, we have (assuming away [[external cost]]s and [[external benefit]]s): | In a world without the price ceiling, we have (assuming away [[external cost]]s and [[external benefit]]s): | ||
[[social surplus]] in absence of price ceiling = ([[producer surplus]] in absence of price | [[social surplus]] in absence of price ceiling = ([[producer surplus]] in absence of price ceiling)+ ([[consumer surplus]] in absence of price ceiling) | ||
We also have: | We also have: | ||
Revision as of 20:09, 21 February 2012
This article attempts to discuss the effects of a price ceiling on the social surplus. The reference point for studying these effects is a world without the price ceiling, where the price is the market price and the quantity traded is the equilibrium quantity traded at that market price.
In a world without the price ceiling, we have (assuming away external costs and external benefits):
social surplus in absence of price ceiling = (producer surplus in absence of price ceiling)+ (consumer surplus in absence of price ceiling)
We also have:
social surplus in presence of price ceiling = (producer surplus in presence of price ceiiling)+ (consumer surplus in presence of price ceiling)
The goal is to ask the questions:
- How does the producer surplus in the presence of a price ceiling compare with the producer surplus in the absence of a price ceiling? If the values differ, what accounts for this difference?
- How does the consumer surplus in the presence of a price ceiling compare with the consumer surplus in the absence of a price ceiling? If the values differ, what accounts for this difference?
- How does the overall social surplus in the presence of a price ceiling compare with the social surplus in the absence of a price ceiling? If the values differ, what accounts for this difference?