Question

What are the effects of price fixing on consumer and producer surplus. How does this create a dead weight loss and effect the market?

Answer 1

Consumer suprlus and the producer surplus Decreases when the price is fixed above ghe equlibrium price. As you know that economic suprlus is equal to consumer surplus plus producer surplus .Therefore consumer suprlus a will be maximsed only when the price is fixed at equlibrium level or at optimal level

When the externalities are absent both price celing and price floor results in deadwight loss. Since price ceiling lead to change in quantity and change in quantity always results in dead weight loss in the economy .Due to the deadwight loss there will negative impact in the economy including buyers producer and government.