Principles of Microeconomics / Unit 2 MIC 0135 worked example, 60 to 90 seconds
Deadweight Loss from a Floor
The idea
A binding floor mirrors the ceiling. First read the quantity demanded at the floor price; that is what gets traded, because buyers decide how much to take. Second, find the lowest price sellers would have accepted for that last unit, reading down to the supply curve. Third, the deadweight loss is the triangle between the two curves from the restricted quantity out to equilibrium: one half of the lost quantity times the vertical gap at the restricted quantity.
In practice
Worked example: a market for cinema tickets clears at eight dollars and eighteen hundred tickets a night. A floor of twelve dollars cuts the quantity demanded to fourteen hundred, and sellers would have accepted six dollars for the fourteen-hundredth ticket. The gap is twelve minus six, or six dollars; the lost quantity is four hundred. Deadweight loss is one half times four hundred times six, which is twelve hundred dollars a night.
Where people slip
Use the quantity demanded this time. Sellers would happily supply more at twelve dollars, but offering does not create sales. The transfer under a floor runs the other way from a ceiling: a rectangle of consumer surplus moves to sellers, which is why sellers ask for floors.
Your place on the trail
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