Surplus areas under a price floor

A floor at P3 is above the equilibrium price P2, so it binds. At P3 buyers only want Q1 units, and sellers cannot sell more than buyers take, so Q1 is the quantity traded.

Now divide the graph. Consumer surplus is the area under demand and above the price paid, out to Q1. With the price at P3 that leaves only triangle A. Producer surplus is the area above supply and below the price received, out to Q1. That is B + C + D: B moved from consumers to producers when the price rose, and C plus D were producer surplus already. Deadweight loss is the surplus on the units between Q1 and Q2 that no longer get traded, the triangles E + F. So the answer is E.

A quick check: before the floor, total surplus was A + B + C + D + E + F. After, it is A + (B + C + D), and the missing piece is exactly E + F.

Each choice

• A. This treats B plus E as the consumers' share, but E is surplus on units that are no longer sold at all, and A is not lost: it is the only surplus consumers keep.
• B. This gives B to consumers. Once price rises to P3, buyers pay more on each of the Q1 units, so rectangle B becomes producer surplus.
• C. Here E is the only loss and F counts for producers. Both E and F lie past Q1, so neither group gets them; F is lost just like E.
• D. These are the equilibrium areas with zero deadweight loss, which is what the market looks like with no floor. A binding floor cuts the quantity traded, so some surplus must be lost.
• E (correct). Under a binding floor, buyers keep only the area above the floor price, sellers gain rectangle B, and the trades that no longer happen are the deadweight loss.