We can use the same type of analysis to measure the effect of rent control on consumer surplus,
producer surplus and economic efficiency. For instance, suppose the city imposes a rent ceiling of $1500
per month. The below figure can help guide us as we measure the effect.
First we calculate the quantity of apartments that will actually be rented by substituting the rent
ceiling of $1500 into the supply equation:
Q
S
=-1000000+ (1300 x 1500)=950,000

We also need to know the price on the demand curve when the quantity of apartments is
950,000. We can do this by substituting 950,000 for quantity in the demand equation and solving for
price:
950,000=4750000-1000P
P=-3800000/-1000=$3800
Compared with its value in competitive equilibrium, consumer surplus has been reduced by a
value equal to the area of triangle B but increased by a value equal to the area of rectangle A. The area
of triangle B is:
½ x (2250000-950000)x(3800-2500)=$845,000,000
And the area of rectangle A is Base x Height or:
950,000 x (2500-1500)= $950000000
The value of consumer surplus in competitive equilibrium was $2,531,250,000. As a result of the rent
ceiling, it will be increased to:
(2531250000 +950000000)- 845000000=2636250000
Compared with its value in competitive equilibrium, producer surplus has been reduced by a value equal
to the sum of the areas of triangle C and rectangle A. The area of triangle C is:
½ (2250000-950000) x (2500-1500) =$650,000,000..

We have already calculated the area of rectangle A as $950,000,000. The value of producer surplus in
competitive equilibrium was $1,947,375,000. As a result of the rent ceiling it will be reduced to:
$1947375000-$650000000-$950000000=$347,375,00/
The loss of economic efficiency as measured by the deadweight loss, is equal to the value

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- Summer '17
- Macroeconomics, Consumer Surplus, Producer Surplus, Supply And Demand, producer