Wize University Microeconomics Textbook > Efficiency
CS and PS with Price Floors
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CS and PS with Price Floors
- In the diagram above the consumer surplus is the area above the price floor but below the demand which is10*(80-60)*1/2 = $100
- Producer surplus is the area below the price floor but above the supply which is(20*10)+(20*10*1/2) = $300
- DWL is the triangle between the original equilibrium quantity and the new quantity which is(15-10)*(60-40)*1/2 = $50
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Example: CS, PS, DWL with Price Floors
Suppose the demand is P = 250 - 3Q and supply is P = 50 + Q. If there is a price floor of $130, what would be the consumer surplus, producer surplus and deadweight loss?
Plug the price of 130 into the demand equation:
130 = 250 - 3Q
3Q = 120
Q = 40
Plug the quantity of 40 in to the supply equation:
P = 50 + 40 = 90
Producer surplus = (40*40* 1/2) + (40*40) = $2400
Consumer surplus = 40 * (250-130) * 1/2 = $2400
DWL = (50 - 40) * (130 - 90) * 1/2 = $200