AFAICT, the deadweight loss triangle from eg price ceilings is just a lower bound on lost surplus. inefficient allocation to consumers means that people who value good less than market equilibrium price can buy it, while dwl triangle optimistically assumes consumers with highest willingness to buy will eat up the limited supply.
Good point. By searching for “deadweight loss price ceiling lower bound” I was able to find a source (see page 26) that acknowledges this, but most explications of price ceilings do not seem to mention that the triangle is just a lower bound for lost surplus.
Lost surplus is definitely a loss—it’s not linear with utility, but it’s not uncorrelated. Also, if supply is elastic over any relevant timeframe, there’s an additional source of loss. And I’d argue that for most goods, over timeframes smaller than most price-fixing proposals are expected to last, there is significant price elasticity.
Ah, I took the “just” in “just a lower bound on lost surplus” as an indicator that it’s less important than other factors. And I lightly believe (meaning: for the cases I find most available, I believe it, but I don’t know how general it is) that the supply elasticity _is_ the more important effect of such distortions.
So I wanted to reinforce that I wasn’t ignoring that cost, only pointing out a greater cost.
AFAICT, the deadweight loss triangle from eg price ceilings is just a lower bound on lost surplus. inefficient allocation to consumers means that people who value good less than market equilibrium price can buy it, while dwl triangle optimistically assumes consumers with highest willingness to buy will eat up the limited supply.
Good point. By searching for “deadweight loss price ceiling lower bound” I was able to find a source (see page 26) that acknowledges this, but most explications of price ceilings do not seem to mention that the triangle is just a lower bound for lost surplus.
Lost surplus is definitely a loss—it’s not linear with utility, but it’s not uncorrelated. Also, if supply is elastic over any relevant timeframe, there’s an additional source of loss. And I’d argue that for most goods, over timeframes smaller than most price-fixing proposals are expected to last, there is significant price elasticity.
I don’t think I was disagreeing?
Ah, I took the “just” in “just a lower bound on lost surplus” as an indicator that it’s less important than other factors. And I lightly believe (meaning: for the cases I find most available, I believe it, but I don’t know how general it is) that the supply elasticity _is_ the more important effect of such distortions.
So I wanted to reinforce that I wasn’t ignoring that cost, only pointing out a greater cost.