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  • Price Cap Leading To Net Loss in Consumer Surplus

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    trieuhoidemon1
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    The document describes the effects of implementing a price ceiling when demand is relatively inelastic and supply is more elastic. It shows that under these conditions, there is a net loss in consumer surplus. The price ceiling reduces production from the original equilibrium quantity to the new lower quantity ceiling. This decreases consumer surplus, but increases producer surplus as producers receive more money per unit. However, the loss in consumer surplus is greater than the gain in producer surplus, resulting in an overall reduction in welfare.

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    Price Cap Leading to Net Loss in Consumer Surplus

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    The document describes the effects of implementing a price ceiling when demand is relatively inelastic and supply is more elastic. It shows that under these conditions, there is a net loss in consumer surplus. The price ceiling reduces production from the original equilibrium quantity to the new lower quantity ceiling. This decreases consumer surplus, but increases producer surplus as producers receive more money per unit. However, the loss in consumer surplus is greater than the gain in producer surplus, resulting in an overall reduction in welfare.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    6 views2 pages

    Price Cap Leading To Net Loss in Consumer Surplus

    Uploaded by

    trieuhoidemon1
    The document describes the effects of implementing a price ceiling when demand is relatively inelastic and supply is more elastic. It shows that under these conditions, there is a net loss in consumer surplus. The price ceiling reduces production from the original equilibrium quantity to the new lower quantity ceiling. This decreases consumer surplus, but increases producer surplus as producers receive more money per unit. However, the loss in consumer surplus is greater than the gain in producer surplus, resulting in an overall reduction in welfare.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
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    The Case of Net Loss in Consumer Surplus from a Price Ceiling (When Demand is Relatively Inelastic and Supply

    is More Elastic)
    P
    Original Consumer Surplus

    Original Producer Surplus

    Consumer Surplus Lost from Reduced Production Surplus Transferred from Producers to Consumers

    Ss
    New Producer Surplus

    Peq

    Pceiling

    Dd
    Qceiling Qeq

    The Case of Net Loss in Consumer Surplus from a Price Ceiling (When Demand is Relatively Inelastic and Supply is More Elastic)
    P
    A Original (Unregulated) Consumer Surplus = Ar(ACG) Original (Unregulated) Producer Surplus = Ar(GCE) Decrease in Consumer Surplus = Ar(BCH)

    Increase in Consumer Surplus = Ar(GHDF)

    Ss

    Note Deadweight Loss = Ar (BCD) and New Producer Surplus = Ar (DEF)

    Peq
    F E

    H D

    Pceiling
    Net Change in Consumer Surplus = Ar(GHDF) Ar(BCH) <0

    Dd
    Qceiling Qeq

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