Explanation

When the government issues a maximum or minimum price of a good, this implements a price ceiling (P_c) or price floor (P_f), respectively. Implementing these policies will deviate from the equilibrium price (P_e) and equilibrium quantity (Q_e).

In this space, an explanation of the desired shift will appear.

There is no dead weight loss because there is an efficient outcome.

Select a price ceiling or floor first.

A price ceiling (P_c) caps the price set by the market to a maximum value that is less than the current equilibrium price (P_e). This creates a shortage of the good because the quantity demanded (Q_d) is greater than the quantity the producer is able to supply (Q_s).

Tighter regulation of a price ceiling (P_c) would shift the price ceiling downwards, farther away from the equilibrium price (P_e). As the difference between quantity demanded (Q_d) and quantity supplied (Q_s) increases, both the shortage and the deadweight loss in the market increase. Consumer surplus will also increase while producer surplus decreases.

Looser regulation of a price ceiling would shift the price ceiling (P_c) upwards, closer to the equilibrium price (P_e). As the difference between quantity demanded (Q_d) and quantity supplied (Q_s) decreases, both the shortage and the deadweight loss in the market decrease. Consumer surplus will also decrease while producer surplus increases.

A price floor (P_f) caps the price set by the market to a minimum value that is greater than the current equilibrium price (P_e). This creates a surplus of the good because the quantity supplied (Q_s) is greater than the quantity that consumers are willing to purchase (Q_d)

Tighter regulation of a price floor (P_f) would shift the price floor upwards, farther away from the equilibrium price (P_e). As the difference between quantity supplied (Q_s) and quantity demanded (Q_d) increases, both the surplus and the deadweight loss in the market increase. The producer surplus will also increase while the consumer surplus decreases.

Looser regulation of a price floor (P_f) would shift the price floor downwards, closer to the equilibrium price (P_e). As the difference between quantity demanded (Q_d) and quantity supplied (Q_s) decreases, both the surplus and the deadweight loss in the market decrease. Producer surplus will also decrease while consumer surplus increases.