The market for face masks in China is in equilibrium (initial equilibrium price is P 1 ∗ and initial equilibrium quantity is Q 1 ∗).
Suppose the Chinese government imposes a binding price ceiling in the market.
In the initial equilibrium, S=D, Price = P1 and quantity = Q1
After the binding price ceiling PC, Equilibrium quantity = QSX and the welfare of the buyers increases by the area C while losing area B
The producers loses area C+D
The deadweight loss from the price ceiling = area B+D
The society as a whole is worse off as the equilibrium quantity traded is now lower and there is deadweight loss
When the demand increases, the DWL would increase in the long run as there would be a shortage of the masks because the producers will supply less at the price ceiling.
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