Final answer:
Consumer surplus occurs because some consumers are prepared to pay more than the equilibrium price. Price floors, which are set above the equilibrium price, can cause a decrease in consumer surplus and create deadweight loss by preventing the market from clearing efficiently.
Step-by-step explanation:
Consumer surplus in a market for a good exists because some consumers would be willing to pay more than the equilibrium price of the good. This surplus is the difference between what consumers are willing to pay, due to their preferences, and the price they actually pay at market equilibrium. It represents the extra satisfaction or utility that consumers receive when they are able to purchase the good at a lower price than what they were prepared to pay.
A price floor, on the other hand, is a legal minimum price set above the equilibrium that can lead to excess supply and reduced consumer surplus because it restricts the market from reaching equilibrium. When a price floor is in effect, it can encourage producers to increase the supply of the good, but this might not result in more transactions if the demand is not there at that price, leading to potential deadweight loss. Both price controls such as price floors and price ceilings create deadweight losses by preventing the market from reaching equilibrium, negatively impacting social surplus.