Understanding Price Ceiling and Deadweight Loss

This lesson explores how a Price Ceiling affects a market and how a binding price ceiling can create a shortage and Deadweight Loss. The graph shows a linear demand and supply curve, with Price on the vertical axis and Quantity on the horizontal axis.

The graph shows the competitive equilibrium, the controlled price under the price ceiling, and the resulting shortage. It also highlights the Deadweight Loss created when some mutually beneficial trades no longer take place.

How to Use the Playground

• Use the slider or +/− buttons (on mobile) to change the Price Ceiling.
• Watch how the Quantity Demanded, Quantity Supplied, and Shortage change as the price ceiling changes.
• Observe how the Deadweight Loss changes when the price ceiling becomes binding.
• Compare the controlled market with the competitive equilibrium to see how a price ceiling affects the quantity traded and total surplus.
• Use the displayed values to understand how the price ceiling can prevent some mutually beneficial trades from taking place.