Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 3: Q 11. (page 78)

If a price floor benefits producers, why does a price floor reduce social surplus?

Short Answer

Expert verified

Social surplus decreases because the lost consumer surplus exceeds the added producer surplus.

Step by step solution

01

Step 1. Define price floor.

When the price charged is greater than or less than the equilibrium price set by market forces of demand and supply, it is referred to as a price floor.

02

step 2. Why does a price floor reduce social surplus if a price floor benefits producers?

The net effect is negative since the losses to consumers outnumber the advantages to producers. Because the lost consumer surplus exceeds the added producer surplus, social surplus decreases.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What would be the impact of imposing a price floor below the equilibrium price?

Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.

Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Show your answer graphically.

What is producer surplus? How is it illustrated on a demand and supply diagram?

Let's think about the market for air travel. From August 2014 to January 2015, the price of jet fuel increased roughly 47%. Using the four-step analysis, how do you think this fuel price increase affected the equilibrium price and quantity of air travel?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free