Question

Consider a market in which the government imposes a price ceiling. Assume that neither supply nor demand is perfectly elastic nor perfectly inelastic.

Which of the following groups will always gain from a price ceiling?

• Consumer
• Producers
• The government
• Society as a whole, because total surplus will increase
• No group will always gain from a price ceiling

Answer 1

No group will always gain from the imposition of a price ceiling

When there is a price ceiling in the market, and it is binding, there is a maximum limit imposed in the market on the price above which it cannot increase. This creates a shortage of product. Producer surplus declines and there is no revenue generated for the government. Consumer surplus can increase decrease or remain unchanged but it is not necessary that it will always increase.