Impose a price ceiling and calculate the deadweight loss
Three steps, the way the exam actually works: work through the lab, write down your own measurements, then answer a 7-point free response. What you recorded goes to the grader with your writing, so a conclusion that does not follow from your own numbers will cost you the point — exactly as it would with a real reader.
Predict before you look
- When a ceiling binds, quantity demanded exceeds quantity supplied. Which of the two determines how much is actually traded?
- Deadweight loss is surplus that nobody captures. How does that differ from surplus transferred between buyers and sellers?
Nothing to submit here — these are to think through, so the prediction below is an informed one rather than a guess.
Commit to an answer now. It is not graded and being wrong costs nothing — the point is to have something specific to reconcile against once you have the data.
Answer every prediction to unlock the lab. A sentence is enough.
Run the investigation
Predictions first
The procedure and the simulation unlock once you have committed above. Observing before predicting is how a wrong intuition survives a lab intact.
Record what you measured
These are your numbers, not ours. The grader sees them, so your conclusions have to follow from what you actually recorded.
| Free-market equilibrium price P* | |
|---|---|
| Free-market equilibrium quantity Q* | |
| Consumer surplus at the free-market equilibrium | |
| Producer surplus at the free-market equilibrium | |
| Shortage with the ceiling set at 45 | units |
| Units actually exchanged at the ceiling | units |
Answer the free response
In this market the demand curve is P = 100 − Q and the supply curve is P = 20 + Q. (a) State the free-market equilibrium price and quantity from your data, and explain why a ceiling set at 45 is binding while a ceiling set at 80 would not be. (b) Using your recorded shortage, explain why a shortage appears at the controlled price and identify the quantity actually exchanged. (c) Calculate the deadweight loss created by the ceiling. Show your work, including how you found the base and height of the relevant area. (d) Identify one group made better off and one group made worse off by the ceiling, and describe one non-price mechanism by which the limited units might end up being allocated.
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