Total surplus and allocative inefficiency due to governemt regulation of price ceiling . Concept introduction: Economic Regulation- The government imposed restrictions on firm decisions over the price, quantity and entry and exit. Price Ceiling- It is the Government imposed price control or the maximum price that can be charged for an output. It is a government control aimed at protecting the consumers against the market exploitation/manipulation by the monopolists, duopolists and oligopolists.To make a ceiling price work,it is necessary either to reduce demand or increase supply. Producers’ Surplus - An economic measure of the difference between price the producer receives for an output and the minimum price at which he is willing to sell the product. It is an aggregate of the producers’ gain in selling a given level of output in the market. Consumers’ Surplus - An economic meaure of the difference between what the consumers are willing to pay for the purchase of a given level of output and what he actually pays for it. It is an aggregate of the consumers’ gain in purchasing a given level of output in the market. Dead weight loss- The fall in the total surplus consequent upon a market distortion like governemnt regulation like price ceiling, price floor or tax etc. It leads to allocative inefficiency.

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Chapter 4, Problem 4.4LO

To determine

Total surplus and allocative inefficiency due to governemt regulation of price ceiling.

Concept introduction:

Economic Regulation- The government imposed restrictions on firm decisions over the price, quantity and entry and exit.

Price Ceiling- It is the Government imposed price control or the maximum price that can be charged for an output. It is a government control aimed at protecting the consumers against the market exploitation/manipulation by the monopolists, duopolists and oligopolists.To make a ceiling price work,it is necessary either to reduce demand or increase supply.

Producers’ Surplus- An economic measure of the difference between price the producer receives for an output and the minimum price at which he is willing to sell the product. It is an aggregate of the producers’ gain in selling a given level of output in the market.

Consumers’ Surplus- An economic meaure of the difference between what the consumers are willing to pay for the purchase of a given level of output and what he actually pays for it. It is an aggregate of the consumers’ gain in purchasing a given level of output in the market.

Dead weight loss- The fall in the total surplus consequent upon a market distortion like governemnt regulation like price ceiling, price floor or tax etc. It leads to allocative inefficiency.

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