Final answer:
To evaluate the efficacy of a price floor in enhancing producers' well-being, one must compare the additional producer surplus from higher prices to the loss in producer surplus due to reduced quantity sold as a result of the price floor.
Step-by-step explanation:
If the intended aim of the price floor set at $23 was to increase the well-being of producers, positive analysis would require evaluating whether the surplus transferred from consumers to producers is greater than the consumer surplus lost due to fewer transactions taking place. When a price floor is implemented, it guarantees a minimum price for producers, shifting some of the consumer surplus to producer surplus. However, by blocking transactions that would have occurred without the price floor, it creates a deadweight loss, and consequently, a loss in social surplus. To determine if producers are overall better off, one must compare the additional producer surplus gained from the higher price against the potential losses from reduced market activity.
For example, referring to Figure 3.24, a price floor is imposed at $12, which is above the equilibrium price of $8. The quantity demanded falls from 1,800 to 1,400, altering the distribution of consumer and producer surplus. The total consumer surplus shrinks to G, and the new producer surplus is H + I. To gauge the effect on producer well-being, one should assess if the increase in producer surplus (reflected by the higher price times the quantity sold) outweighs the reduction in transactions.