@TurtlePink No problem. So it's a little complicated but I'll try to be clear. A price ceiling is when the government limits what price a company can make their good. So for example, if the government said bread couldn't cost over 5 dollars (stupid example but it doesn't matter). A price floor is when the government does the opposite and says that a price can't be below a certain point. Like if they said no shoes could be sold for under 5 dollars.
A price ceiling benefits consumers because it limits how costly the good is.
While price floor benefits producers (or suppliers).
Does that make sense so far? (I know there's more to the graph and I'll explain those parts, but it's important to get those concepts first)
@TurtlePink When I was learning it I had to dumb it down for myself first. 馃槄
Yeah, there's a little more. So, when they're talking about "social surplus" they're discussing about the market equilibrium. There is (theoretically) a point where both the consumer and producer agree on a price. At that point the economy is functioning at maximum efficiency. It's where both of the curves cross/meet.
So, what happens when I set a price ceiling below market equilibrium (which is the first graph)? Well that means that the business is forced to make a price lower than they would at the equilibrium. For example (with the bread) if the price ceiling was 5 dollars but the equilibrium price was 10 dollars then the company is losing out on 5 dollars for every transaction they make.
Generally, whenever the price ceiling is below the equilibrium, the producer loses money, the consumer gains money and there is a net decrease in overall social surplus (since the economy is not functioning at its maximum efficiency).
Using the graph (and a little math) you can calculate how much money the suppliers lose, the consumers gain and the total affect on net social surplus. All those boxes (with the letters) are representations that you can use to help you in your calculations. That's too complicated/annoying to explain on SW but there are tons of sites like Khan academy on youtube that explain how to do that.
On a test you'll more than likely be asked to do that.
@Chaoshead Dude, you're the best! I had to register that information into my brain a couple times before it made sense. But Im finally getting it. I appericate your help, :* Now Im at a better start with all of this.
