1
Q
Price ceiling graph
A
- Quantity demanded increase
- Quantity supplied decrease
- Shortage/Excess demand
- Units between Q1 and Q* are NOT produced
- Reduction in production causes a welfare loss because they have MV>MC
2
Q
Consequences of a price ceiling
A
- Creates a shortage
- Other consumers would be willing to pay more for the good
- Creates a profit opportunity by reselling the good at the market price
3
Q
Side effects of price ceilings:
A
- Inefficiently low quantity
- Inefficiently low quality
- Inefficient allocation to customers
- Wasted resources
