Same as the title. From the Graphs, I cannot see any difference or what makes policymakers to distinguished those two?

enter image description here

Here is the capture from Perloff's textbook. Now compare this with the case that government impose a unit tax $(p_3-p_2)$ on suppliers. The tax case and price ceiling simply reach the same outcome, from what ground distinguished these two policies?

Appreciate for any comments

  • 1
    $\begingroup$ Theoretical differences depend on what you are trying to measure. Units sold? Surplus? Can you please share "the Graphs" (edit them into the question), so that we can better understand your problem? $\endgroup$
    – Giskard
    Commented Aug 21, 2021 at 9:10
  • $\begingroup$ Practical differences are quite clear: a price ceiling sets a price; a tax influences the price, but without perfect knowledge the government will not foresee the price. $\endgroup$
    – Giskard
    Commented Aug 21, 2021 at 9:11
  • $\begingroup$ I have been re-edited, cheers $\endgroup$
    – LJNG
    Commented Aug 21, 2021 at 9:44
  • $\begingroup$ Their CS, PS, WFL are all the same. $\endgroup$
    – LJNG
    Commented Aug 21, 2021 at 9:46
  • 1
    $\begingroup$ I agree with your point about the intersect, but how do you know that "CS, PS, WFL are all the same"? $\endgroup$
    – Giskard
    Commented Aug 21, 2021 at 9:54

1 Answer 1


The outcomes are not same.

In the case of tax government would get the rectangle areas B+D, whereas in case of price celling consumers get the areas B+D.

Yes, the deadweight loss is the same in both cases, and the total surplus is also the same in both cases, but the total surplus is distributed differently.

PS: policies are not distinguished just based on outcomes. C02 Pigouvian tax or cap and trade quotas can be set up in a way that all outcomes are identical. Yet the policies are being distinguished in the literature because they use different tools.

An analogy: you can use both axe and knife for cutting, yet we have different names for these tools even if the outcome can be identical from using them in certain ways.


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