Price Controls and Consumer Surplus
Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone is enough to ensure that consumer surplus is always reduced by a price control in an otherwise-competitive market with convex demand if supply is more elastic than demand; or when demand is log-convex (e.g., constant-elasticity) even if supply is inelastic. The same results apply both when rationed goods are allocated by costless lottery among interested consumers, and when costly rent-seeking and/or partial de-control mitigates the allocative inefficiency. The results are best understood using the fact that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.
|Date of creation:||Oct 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (650) 723-2146
Web page: http://gsbapps.stanford.edu/researchpapers/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- An, Mark Yuying, 1998.
"Logconcavity versus Logconvexity: A Complete Characterization,"
Journal of Economic Theory,
Elsevier, vol. 80(2), pages 350-369, June.
- An, Mark Yuying, 1995. "Logconcavity versus Logconvexity: A Complete Characterization," Working Papers 95-03, Duke University, Department of Economics.
- Bagnoli, M. & Bergstrom, T., 1989.
"Log-Concave Probability And Its Applications,"
89-23, Michigan - Center for Research on Economic & Social Theory.
- Filip Palda, 2001.
"Some Deadweight Losses from the Minimum Wage: The Cases of Full and Partial Compliance,"
Labor and Demography
- Palda, Filip, 2000. "Some deadweight losses from the minimum wage: the cases of full and partial compliance," Labour Economics, Elsevier, vol. 7(6), pages 751-783, November.
- Luttmer, Erzo F.P., 2007.
"Does the Minimum Wage Cause Inefficient Rationing?,"
IZA Discussion Papers
2713, Institute for the Study of Labor (IZA).
- Luttmer Erzo F.P., 2007. "Does the Minimum Wage Cause Inefficient Rationing?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-42, October.
- Erzo F.P. Luttmer, 2007. "Does the Minimum Wage Cause Inefficient Rationing?," NBER Working Papers 13012, National Bureau of Economic Research, Inc.
- Luttmer, Erzo F. P., 2007. "Does the Minimum Wage Cause Inefficient Rationing?," Working Paper Series rwp07-018, Harvard University, John F. Kennedy School of Government.
- Lucas W. Davis & Lutz Kilian, 2011.
"The Allocative Cost of Price Ceilings in the U.S. Residential Market for Natural Gas,"
Journal of Political Economy,
University of Chicago Press, vol. 119(2), pages 212 - 241.
- Lucas W. Davis & Lutz Kilian, 2008. "The Allocative Cost of Price Ceilings in the U.S. Residential Market for Natural Gas," NBER Working Papers 14030, National Bureau of Economic Research, Inc.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
- Edward L. Glaeser & Erzo F. P. Luttmer, 1997.
"The Misallocation of Housing Under Rent Control,"
NBER Working Papers
6220, National Bureau of Economic Research, Inc.
- R. Quentin Grafton & Michael B. Ward, 2008. "Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages S57-S65, 09.
- W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x, June.
When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:2086. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.