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Suppose the supply curve for a good is totally inelastic. If the government imposed a price ceiling below the market-clearing level, would a deadweight loss result? Explain.
While the supply curve is totally inelastic, the imposition of an effective price ceiling transfers all loss in manufacturer surplus to consumers. Consumer surplus rises by the variation among the market-clearing price and the price ceiling times the market-clearing quantity. Consumers capture all reduces in total revenue. Hence, no deadweight loss occurs.
MARGINAL ANALYSIS It is difficult to develop the conditional profit table when there are a large number of scenarios and possible actions. The marginal analysis approach sides
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