Suppose that Congress caps executive pay at a level below the equilibrium.

• Explain how the quantity of executives demanded, the quantity supplied, and executive pay will change, and explain why the outcome is inefficient.

• Draw a graph of the market for corporate executives. On your graph, show the market equilibrium, the pay cap, the quantity of executives supplied and the quantity demanded at the pay cap, and the deadweight loss created. Also show the highest pay that an executive might be offered in a black market.