Reading: Price Ceilings: Misallocation of Resources

•Because goods are not always allocated to the highest valued uses…

•Consumer surpluses will be less

•How much less?

•Let’s do some reasonable calculations

•First, we will consider how one gallon of gasoline might be allocated under the best and worst conditions for random allocation

The Loss from Random Allocation of One Gallon: Best Case Scenario

The Loss from Random Allocation of One Gallon: Worst Case Scenario