Consumer Surplus After Price Floor

Visual animation on calculating consumer surplus producer surplus and deadweight loss before and after a price floor.

Consumer surplus after price floor.

Consumer surplus is g h j and producer surplus is i k. Consumer surplus is an economic measurement to calculate the benefit i e surplus of what consumers are willing to pay for a good or service versus its market price. As a result the new consumer surplus is t v while the new producer surplus is x. Consumer surplus always decreases when a binding price floor is instituted in a market above the equilibrium price.

After the establishment of the price floor the market does not clear and there is an excess supply of amount qs qd. At price pf consumer demand is qd. A price floor is imposed at 12 which means that quantity demanded falls to 1 400. B the original equilibrium is 8 at a quantity of 1 800.

Producers are better off as a result of the binding price floor if the higher price higher than equilibrium price makes up for the lower quantity sold. And this tutorial men talk about consumer surplus and producer surplus i am talk about price ceilings i am gonna calculate total benefit before and after a pricing. Price floor is enforced with an only intention of assisting producers. Government set price floor when it believes that the producers are receiving unfair amount.

Description of how price floors operate in a competitive market and the effects on consumer surplus producer surplus and social surplus using supply and dem. Typically taught in microeconomics. The total economic surplus equals the sum of the consumer and producer surpluses. The theory explains that spending behavior varies with the preferences of individuals.

However price floor has some adverse effects on the market. Consumer surplus will only increase as long as the benefit from the lower price exceeds the costs from the resulting shortage.