Economics essay Term Paper Example | Topics and Well Written Essays - 500 words

Economics essay - Term Paper Example Some consumers may wish to rent houses at higher rates than P and sellers may violate the existing law by accepting these prices offered. Therefore, sellers may accept price E because the consumers will be willing to rent rates above P as competition arises among consumers who strive to acquire the scarce commodity. The prices will go high up to E which is illustrated in the diagram below. The quantity demanded exceeds Qs at any lower price than E, and consumer’s effort remains intensified. The market reaches the Equilibrium only when the price reaches P. The competitive price is D. The price the suppliers will receive is P regardless of the higher price due to price ceilings. Hence, price E is used in calculating the consumer’s surplus. Producer’s surplus is calculated using P. In both cases, the actual quantity of houses is Qs. According to Taylor and Weerapana (194), when the government imposes price ceiling, producers will sell less quantity at lower prices a nd will lose some profits. If some consumers purchase products at higher prices, producers will gain. However, other consumers will lose because the supplies will be scarce. According to Hirschey (437), dead weight loss results from competitive market equilibrium deviations. He further asserts that deadweight loss can occur to both consumers and producers and is not transferable. Instead, losses arise from imperfections in the market and government policies. Deadweight loss is known as welfare loss triangle. This is because when linear curves of supply and demand are used, deadweight losses are portrayed as triangles. From the figure above, the effects of imposition of price ceiling on both the consumer and producer surplus is shown. The sum of consumer and producer surplus before the price ceiling was imposed is shown by the area of triangle ABC, the area BCD shows consumer surplus and the producer surplus is