Price Controls and Consumer Surplus
AbstractThe condition for when a price control increases consumer welfare in perfect competition is tighter than often realised. When demand is linear, a small restriction on price only increases consumer surplus if the elasticity of demand exceeds the elasticity of supply; with log-linear or constant-elasticity, demand consumers are always hurt by price controls. The results are best understood - and can be related to monopoly-theory results - using the fact that consumer surplus equals the area between the demand curve and the industry marginal-revenue curve.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7412.
Date of creation: Aug 2009
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Other versions of this item:
- Jeremy Bulow & Paul Klemperer, 2009. "Price Controls and Consumer Surplus," Economics Papers 2009-W07, Economics Group, Nuffield College, University of Oxford.
- Bulow, Jeremy & Klemperer, Paul, 2011. "Price Controls and Consumer Surplus," Research Papers 2086, Stanford University, Graduate School of Business.
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D6 - Microeconomics - - Welfare Economics
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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