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Social surplus is a crucial concept in understanding how economic benefits are distributed in a market. It represents the total value that society receives from the production and consumption of goods and services. This value is essentially the sum of two other surpluses: consumer surplus and producer surplus. Social surplus is maximized when goods and services are allocated efficiently, meaning all potential gains from trade between consumers and producers are realized.
In an efficient market, social surplus is at its peak because there is a balance between supply and demand. However, government interventions like price floors can disrupt this balance. While price floors might aim to help certain groups, they often result in a decline in social surplus because they prevent the market from reaching its natural equilibrium.

• Social surplus = Consumer surplus + Producer surplus
• Maximized when the market is at equilibrium
• Decreases with inefficiencies like excess supply or demand

Producer surplus is the extra benefit producers receive when they sell a product for more than the minimum price they're willing to accept. Essentially, it's the difference between the actual price received and the lowest price a producer would have been willing to take.
With a price floor, producers might initially see an increase in their surplus if the price floor is above the equilibrium price. This is because they can sell some products at a higher price than they would in a free market. However, not all producers benefit equally. The higher price can decrease overall demand, leading to excess supply that some producers cannot sell. These producers might experience a loss rather than a gain, as they cannot move their product at the floor price.

• Calculated as the price received minus the lowest price producers would accept
• Increases with higher market prices but not universally
• Can decrease with high unsold inventory

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. It measures the benefit consumers receive from purchasing at a lower price than their maximum willingness to pay.
When a price floor is set above the equilibrium, consumers face higher prices. This results in a reduction in consumer surplus since they end up paying more than what they would in a perfectly competitive market. Consumers who are priced out may avoid purchasing entirely, leading to a further decrease in consumer surplus.

• Calculated as the difference between willingness to pay and actual price paid
• Decreases when prices exceed equilibrium level
• Can lead to fewer market transactions