Citation

Discussion Paper Details

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Title: Price Controls and Consumer Surplus

Author(s): Jeremy I. Bulow and Paul Klemperer

Publication Date: August 2009

Keyword(s): Allocative Efficiency, Consumer Welfare, marginal revenue, Microeconomic Theory, Minimum Wage, rationing and rent control

Programme Area(s): Industrial Organization and Public Economics

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.

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Bibliographic Reference

Bulow, J and Klemperer, P. 2009. 'Price Controls and Consumer Surplus'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7412