Answer to Question #89226 in Microeconomics for Areesha sajid

Question

Analyse the effect of a price ceiling in the market for wheat on equilibrium price and quantities. What consumers/producers/both benefit because of the price ceilings? Explain using changes in consumer and producer surpluses

Answer 1

A price ceiling in the market for wheat will decrease equilibrium price and quantities, and a shortage of wheat will occur. Some consumers will benefit because of decrease in price, but other consumers who will have no possibility to buy wheat as a result of shortage and producers will be worse off because of the price ceilings.

Consumer surplus will increase, producer surplus will decrease, and the deadweight loss will be created.