Price Controls and Consumer Surplus

Jeremy Bulow and Paul Klemperer

No 7412, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The condition for when a price control increases consumer welfare in perfect competition is tighter than often realised. When demand is linear, a small restriction on price only increases consumer surplus if the elasticity of demand exceeds the elasticity of supply; with log-linear or constant-elasticity, demand consumers are always hurt by price controls. The results are best understood - and can be related to monopoly-theory results - using the fact that consumer surplus equals the area between the demand curve and the industry marginal-revenue curve.

Keywords: Rationing; Allocative efficiency; Microeconomic theory; Marginal revenue; Minimum wage; Rent control; Consumer welfare (search for similar items in EconPapers)
JEL-codes: D45 D6 D61 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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Working Paper: Price Controls and Consumer Surplus (2011)
Working Paper: Price Controls and Consumer Surplus (2009)
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