Why Price floors and price ceilings can lead to deadweight loss?

 Both price floors and price ceilings can lead to deadweight loss by preventing some mutually beneficial transactions between buyers and sellers. 

• Price Ceiling: This is a maximum price set by the government or another authority. When a price ceiling is set below the equilibrium price (the price where supply and demand meet), it can lead to a shortage because the quantity demanded exceeds the quantity supplied. For example, if rent control is set below the market equilibrium, more people will want to rent apartments than there are apartments available, leading to a shortage. This also means that some potential transactions that would have occurred at the equilibrium price do not happen, resulting in deadweight loss.

• Price Floor: This is a minimum price set above the equilibrium price. When a price floor is set, it can lead to a surplus because the quantity supplied exceeds the quantity demanded. For instance, if the minimum wage is set above the market equilibrium wage, it can lead to unemployment because employers might hire fewer workers than they would at a lower wage, and some workers may not be able to find jobs. Again, this means that some transactions that would have occurred at the equilibrium price/wage do not happen, creating deadweight loss.

In both cases, the government intervention distorts the natural balance of supply and demand, leading to inefficiencies and a loss of economic welfare.