← Market equilibrium

Surplus, efficiency & price controls (every paper)

CS + PS maximised at equilibrium; controls shrink it.

Welfare answers in three sentences

  • At equilibrium Qe, marginal benefit equals marginal cost → allocative efficiency.
  • A price floor above Pe cuts quantity traded to Qd → some mutually-beneficial trades vanish.
  • The lost CS + PS is the deadweight loss — society is worse off, even if the aim (fair wages) is not.
Exam-style Showing before/after CS, PS, and deadweight loss for a rent control A maximum rent control is imposed below the market equilibrium rent. Complete a before/after comparison of consumer surplus, producer surplus, and deadweight loss. BEFORE (at Pe, Qe): CS and PS are both at their maximum combined total; no deadweight loss exists. AFTER (at the rent ceiling, quantity limited to Qs): CS may rise for tenants who still find housing at the lower rent, but SOME tenants cannot find housing at all — the net change in CS is ambiguous without more detail. PS falls, since landlords receive a lower price on a smaller quantity supplied. DEADWEIGHT LOSS: a new triangle appears between the demand and supply curves, from the new (lower) quantity out to Qe — representing rental transactions that would have benefited both tenant and landlord but no longer happen. ✓ A "before/after" table question wants each value labelled at BOTH points, with the DIRECTION of change (up, down, ambiguous) stated for each — not just the final shape drawn on the graph.

A fast check on a welfare/deadweight-loss answer

  • Have I labelled CS, PS, and DWL at BOTH the before and after points, not just one?
  • Have I stated the direction of change (up, down, or genuinely ambiguous) for each?

Practise just this