Under what condition does a price ceiling not create a deadweight loss?

A price ceiling is a legally established maximum price that can be charged for a good or service. When evaluating the impact of a price ceiling on market outcomes, particularly the creation of deadweight loss, it is important to consider its relationship with the equilibrium price.

When the equilibrium market price lies below the price ceiling, the price ceiling is not constraining the market. Essentially, this means that sellers can still sell at the equilibrium price, and there is no restriction on how the market would naturally function. In this scenario, buyers are able to purchase the good at the market price, and sellers are willing to sell at that price, leading to an efficient allocation of resources. Since both buyers and sellers are operating at the equilibrium quantity, there is no surplus or shortage created that would lead to a loss of economic efficiency, therefore no deadweight loss occurs.

In contrast, if the price ceiling were set below the equilibrium price, it would lead to a situation where the quantity demanded exceeds the quantity supplied, creating a shortage. This shortage would restrict transactions that would normally occur at the equilibrium price, leading to a deadweight loss.

In summary, when the equilibrium market price is below the price ceiling, the market functions without distortion, allowing for efficient transactions and no