01:220:102 Lecture Notes - Lecture 6: Deadweight Loss, Price Ceiling, Price Floor

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: Alexandre Hohmann

Document Summary

Price ceiling: maximum price sellers are allowed to charge for a good or service. Price controls: legal restrictions on how high or low a market price may go. Price ceiling give rise to illegal behavior as people try to circumvent them: inefficiently low quantity. Deadweight loss: loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity: inefficient allocation to consumers. Inefficient allocation to consumers: some people who want the good badly and are willing. Deadweight-loss triangle: shaded triangle in a graph representing surplus lost. Loss to society: loss in surplus that accrues to no one as a gain. Wasted resources: people expend money, effort, and time to cope with the shortages caused by the price ceiling: inefficiently low quality. Inefficiently low quality: sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price.