Define the deadweight loss. Why does a price ceiling usually result in a deadweight loss? How...

Define the deadweight loss. Why does a price ceiling usually result in a deadweight loss? How can a price ceiling make consumers better off? Under what conditions might it make them worse off?

Expert Solution

Deadweight loss is like a cost arisen to due to market inefficiencies born by the society. It is a result of imbalance between the demand and supply which maybe a result of the allocation inefficiencies.

A price ceiling sets and upper limit to the price of a product beyond which a producer cannot charge his customers. This usually results in deadweight loss. Due to price ceiling, demand rises due to a set lower price. But since the supply is limited and so the suppliers are reluctant at selling at lower costs, this leads to a deadweight loss. It happens incase the equilibrium price is higher than the ceiling price

Still price ceiling makes consumers better off as the price has an upper limit/ceiling. The suppliers in this case will not be able to charge the consumers exorbitantly high which lets the consumer be in a better situation.

The price ceiling in certain conditions leave the customers worse off. It maybe due to the fact that suppliers inorder to earn higher, reduce the quantity o

offered or their product quality to make up for the price ceiling.

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Rahul Sunny answered 1 year ago

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