AP Microeconomics / Supply and Demand
Lesson
Policies, surplus, and deadweight loss
Taxes, subsidies, and price rules change who pays and how much is traded.
Learning goals
- Show how a binding price control creates shortage or surplus.
- Identify consumer surplus, producer surplus, and wasted trades.
Explanation
A price ceiling below equilibrium creates a shortage: more people want the good than sellers will offer. A price floor above equilibrium creates a surplus. Binding means the rule actually changes the price. A ceiling above equilibrium is just unused ink.
Consumer surplus is the gap between willingness to pay and price. Producer surplus is the gap between price and willingness to sell. A tax wedges those prices apart and can erase some mutually beneficial trades. That missing surplus is deadweight loss.
Key terms
- Consumer surplus. The extra benefit buyers receive when they pay less than their willingness to pay.
- Deadweight loss. Surplus lost when mutually beneficial trades do not happen.
Common mistakes
- Drawing a ceiling above equilibrium and calling it a shortage.
- Assuming the legal taxpayer is the only person who bears a tax.
Practice
Original Marlow Works items. Check the answer explanation after you try.
A binding price ceiling is set below equilibrium in the market for rental apartments. What is the most likely result?
Original Marlow Works item — not a College Board question.
Take your time—this is practice, not a test.
Answer explanation
A binding minimum wage sits above the market wage. What happens in a competitive labor market graph?
Answer. Quantity of labor supplied exceeds quantity demanded, so there is a surplus of labor.
A floor above equilibrium leaves some workers wanting jobs at that wage who are not hired.
Related resources
External links with reuse status. Marlow Works is independent and does not copy restricted exam or textbook material.
Official / link only
AP Microeconomics course page
Official six-unit framework for markets, costs, and market failure.
College Board · All rights reserved · accessed 2026-10-01
Open sourceCC BY — attribution required
Principles of Microeconomics: Scarcity and Social Provisioning
Open microeconomics background for scarcity, markets, and elasticity.
Open Textbook Library listing · CC BY · accessed 2026-10-01
Open source