Use the figure below to answer the following question.

If a price floor in this market is set at , then deadweight loss equals area

Question

Use the figure below to answer the following question.

If a price floor in this market is set at , then deadweight loss equals area

BlackTom AI · Accepted Answer

Let’s break down what the graph is showing and how a price floor at P2 affects voluntary trades and welfare.
Option A: d+h. This combination represents the two triangular areas that are no longer traded due to the price floor, i.e., the deadweight loss. When the price floor is above the equilibrium price, some mutually beneficial trades between Q2 and Q3 that would have occurred at the market-clearing price are not realized, creating DWL equal to the sum of the two triangles labeled d and h on the graph. The rest of the areas (b, c, e, f, g, i, etc.) either remain traded or represent surplus/undersupply effects that do not constitute DWL in the standard analysis.
Option B: d. If we only counted area d, we would be missing half of the lost welfare. There is typically more than one truncated transaction region under a price floor that lies above equilibrium, because trades that would have occurred over a range of Q are prevented. Therefore, attributing DWL to only d understates the true loss.
Option C: b+d. The area b is typically associated with one side of the surplus or deficiency created by the floor, but DWL usually comprises the two lost surplus triangles between the supply and demand curves over the quantity range where trades would have occurred but don’t due to the floor. Including b along with d mixes in a region that is not part of the standard deadweight loss under a simple floor, so this is not the correct DWL total.
Option D: f. The area f is another region that, depending on the labeling, might reflect a different welfare component (often a consumer or producer surplus piece or a rectangle representing quantity distortion). However, DWL from a price floor is not just the single rectangle or region labeled f; it is the two triangular regions created by the prevented trades, namely d and h. Hence f alone does not capture the DWL.
In summary, the deadweight loss from imposing a price floor at P2 is the sum of the two triangular areas that represent the trades that would have occurred between Q2 and Q3 but are not realized, which corresponds to d + h.

Use the figure below to answer the following question. If a price floor in this market is set at , then deadweight loss equals area

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