Assignment 6: Price Ceilings, Floors, and Deadweight Loss

This economics assignment delves into the concepts of price ceilings and price floors, explaining their differences, economic rationales, and the parties they impact. It further explores consumer surplus, producer surplus, and deadweight loss, providing real-world examples for each. The assignment also examines taxation strategies to limit deadweight loss, differentiating between goods suitable for taxation and those to avoid taxing. The student's work demonstrates an understanding of market efficiency, government intervention, and their consequences, drawing on economic principles to analyze various scenarios and providing relevant examples to illustrate the concepts.

Question
In your own words, explain the difference between price ceilings and price
floors. Why would an economy use them? Who is hurt by each one and
why? Who is helped by each one and why?
Answer
A price ceiling implies the legal maximum price for a good or service while
on the other hand the price floor is the legal minimum price for a good or
service in the economy,
These are introduced to regulate the market and set the prices of certain
essential goods to a certain fixed level so as to make them affordable and
floor is imposed so that prices of certain goods don’t fall below a
particular level.
Under price floor, consumers are hurt and under-price ceiling producer is
hurt.
The price floor mechanism helps the producer while the price ceiling
mechanism helps the consumer. (Price Controls, 2020)
Question
Why would the government support price ceilings and price floors knowing
that they are inefficient? What might they be trying to accomplish?
Answer
Government generally supports price ceiling and price floor to support the
business in the economy both from consumer and seller point of view. A
price floor is generally introduced so that prices of certain goods and
services don’t fall a basic minimum while on the other hand price ceiling is
introduced so that price of certain daily necessary goods don’t go above a
certain amount and remain affordable in the hands of common mass.
These actions are taken by government to ensure the following:
(a) From Price floor: A minimum sustainenance price so that the goods are
sold at a price above the cost and these actions at times to ensure a
steady rate of inflation in the economy;
(b)From Price Ceiling: A maximum price that can be charged so as to
ensure the price of goods like staples, generic medicines does not go
beyond the reach of normal man so as to maintain the purchasing
power of masses.
Question 3

In your own words, explain the difference between consumer surplus,
producer surplus and deadweight loss. Provide one real world example of
each. Do NOT use examples from the textbook
Answer:
The consumer surplus is the net of the price the customer is willing to pay
for the goods and the actual price which is prevailing in the market for
that particular goods and services.Example:air ticket bought for a flight to
Disney land during the school vacation cost $100 and the payer is
expected and willing to pay $200 .The excess $100 is consumer surplus.
The producer surplus is the net of the market price and the lowest price
the producer of goods is willing to accept for as such. Example: Selling of
luxury vehicle.
A deadweight loss is the cost which the society has to bear due to
inefficiency in the market when happens generally when the supply and
demand for goods are not in equilibrium. Example: goods with higer price
may make profit for the manufacturer but affects the final consumer.
Question
If you were trying to limit deadweight loss, what types of good would you
tax? Be specific, provide two real world non-textbook examples. What
types of goods would you try to avoid taxing? Be specific, provide two
real world non-textbook examples.
Answer
If dead weight loss needs to be reduced, the type of good that can be
taxed by the government to ensure smooth flow are goods for which the
demand or supply is inelastic. Further, with goods which are perfectly
inelastic dead weight loss is zero. The examples of such good are foods,
regular staples and other daily necessities.
The type of good that the government should avoid taxing so as to reduce
the dead weight loss is generally elastic goods encompassing black coffee
we drink, airline tickets. (Examples of Elastic and Inelastic Demand, 2020)

References
Examples of Elastic and Inelastic Demand. (2020, March 9). Retrieved from
courses.lumenlearning.com:
https://courses.lumenlearning.com/suny-microeconomics/chapter/reading-examples-of-
elastic-and-inelastic-demand/
Price Controls. (2020, March 9). Retrieved from thismatter.com:
https://thismatter.com/economics/price-controls.htm