Price Ceiling and Floor Calculator

Shortage/surplus and deadweight loss from a binding price ceiling or floor.

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About this tool

Enter linear demand and supply, choose a ceiling or a floor and set the controlled price. The calculator shows whether it binds, the shortage or surplus, the quantity actually traded and the deadweight loss.

How to use

1
Step 1
Enter the demand and supply parameters a, b, c and d.
2
Step 2
Choose price ceiling or price floor.
3
Step 3
Enter the controlled price and compute.

How it works

A ceiling is a legal maximum. It only matters when set below equilibrium, where buyers want more than sellers supply and the shortfall is the shortage. A floor is a legal minimum that bites above equilibrium, where sellers supply more than buyers want. At a binding control, the short side of the market determines the quantity traded, and total surplus falls below its free-market level by the deadweight loss.

ceiling binds if P_c < P*      shortage = Qd(P_c) − Qs(P_c)      floor binds if P_f > P*      surplus = Qs(P_f) − Qd(P_f)

Worked example

A ceiling at 15 and a floor at 25

Input
a 120; b 3; c 20; d 2; ceiling 15, then floor 25
Output
Ceiling: shortage 25; DWL 41.67. Floor: surplus 25; DWL 93.75
Walkthrough
Equilibrium is P = 20, Q = 60. At 15, demand is 75 and supply is 50, so the shortage is 25 with 50 traded. At 25, demand is 45 and supply is 70, so the surplus is 25 with 45 traded. A ceiling set at 25 or a floor at 15 is not binding.

Limitations

  • Assumes trade at the short side with no rationing or black market.
  • Linear curves only.
  • The controlled price cannot be negative.

Questions

What happens when a price ceiling is below equilibrium?
Quantity demanded exceeds quantity supplied, creating a shortage. In this example, 75 demanded and 50 supplied at a price of 15.
When is a price floor binding?
Only when it is set above the equilibrium price. Below it, the market price stays at equilibrium.
What is deadweight loss?
The total surplus lost relative to the free market. The ceiling at 15 loses 41.67 and the floor at 25 loses 93.75.
Which quantity is traded under a ceiling?
The smaller of demand and supply, which is supply at the controlled price: 50 units.

Features

  • Ceiling and floor modes
  • Shortage or surplus
  • Deadweight loss
  • Runs in your browser

Related resources

Guides and videos from around the web—opens on YouTube or the publisher’s site.

  • Market equilibrium

    Khan Academy

    How P* and Q* arise before surplus shading.

    Watch on YouTube

  • Taxes and deadweight loss

    Khan Academy

    Tax wedges and DWL behind the incidence calculator.

    Watch on YouTube
  • Demand

    EconLib

    Encyclopedia entry on demand next to elasticity tools.

  • Supply and demand

    Wikipedia

    Equilibrium reference for linear market calculators.

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