Priceceiling can make consumers better off as some can puraches as the lowest price possible, but it can also make them aorse off dueto some who are rationed out of the market due to reduction in production and sales
If the supply curve is highly inelastic a price ceiling will usually increase consumer surplus because the quantity available will not decline much, but consumers get to purchase the product at a reduced price. If the demand curve is inelastic, on the other hand, price controls may result in a net loss of consumer surplus because consumers who value the good highly are unable to purchase as much as they would like. (See Figure 9.3 on page 313 in the text.) The loss of consumer surplus is greater than the transfer of producer surplus to consumers.So consumers are made better off when demand is relatively elastic and supply is relatively inelastic, and they are made worse off when the opposite is true.
If the supply curve is highly inelastic a price ceiling will usually increase consumer surplus because the quantity available will not decline much, but consumers get to purchase the product at a reduced price. If the demand curve is inelastic, on the other hand, price controls may result in a net loss of consumer surplus because consumers who value the good highly are unable to purchase as much as they would like. (See Figure 9.3 on page 321 in the text.)
The loss of consumer surplus is greater than the transfer of producer surplus to consumers. So consumers are made better off when demand is relatively elastic and supply is relatively inelastic, and they are made worse off when the opposite is true.
Priceceiling can make consumers better off as some can puraches as the lowest price possible, but it can also make them aorse off dueto some who are rationed out of the market due to reduction in production and sales
ReplyDeleteIf the supply curve is highly inelastic a price ceiling will usually increase consumer surplus because the quantity available will not decline much, but consumers get to purchase the product at a reduced price. If the demand curve is inelastic, on the other hand, price controls may result in a net loss of consumer surplus because consumers who value the good highly are unable to purchase as much as they would like. (See Figure 9.3 on page 313 in the text.) The loss of consumer surplus is greater than the transfer of producer surplus to consumers.So consumers are made better off when demand is relatively elastic and supply is relatively inelastic, and they are made worse off when the opposite is true.
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ReplyDeleteIf the supply curve is highly inelastic a price ceiling will usually increase consumer surplus because the quantity available will not decline much, but consumers get to purchase the product at a reduced price. If the demand curve is inelastic, on the other hand, price controls may result in a net loss of consumer surplus because consumers who value the good highly are unable to purchase as much as they would like. (See Figure 9.3 on page 321 in the text.)
The loss of consumer surplus is greater than the transfer of producer surplus to consumers. So consumers are made better off when demand is relatively elastic and supply is relatively inelastic, and they are made worse off when the opposite is true.