
Figure 3.7 The Effects of a Price Ceiling
A price ceiling affects both producer and consumer surpluses. Before price controls in the pizza market, consumers pay $10 per pizza, and producers supply 10,000 pizzas per week at the equilibrium point
w. Consumer surplus is the triangle
A +
B +
C, and producer surplus is
D +
E +
F. At the $8 price ceiling, pizzerias are only willing to supply 6,000 pizzas (point
x), but consumers demand 12,000 pizzas (point
y ), creating excess demand. Because pizzerias are now selling fewer pizzas at a lower price, producer surplus is reduced to area
F. The new consumer surplus is the area
A +
B +
D, and the net gain to consumers is
D –
C. The shaded area
C +
E is the deadweight loss created by the price ceiling.