In this unit on Consumer and Producer Surplus, you will learn about the following:
*Consumer Surplus Definition
*Individual Consumer Surplus
*Market Consumer Surplus
*Figuring the Area of Consumer Surplus
*Producer Surplus Definition
*Individual Producer Surplus
*Market Producer Surplus
*Figuring the Area of Producer Surplus
*Consumer Surplus Definition
*Individual Consumer Surplus
*Market Consumer Surplus
*Figuring the Area of Consumer Surplus
*Producer Surplus Definition
*Individual Producer Surplus
*Market Producer Surplus
*Figuring the Area of Producer Surplus
| Consumer and Producer Surplus |
Have you ever purchased a product at a price that is less than the price you were
willing and able to pay, and you felt as if you got a "gonga" of a deal ("great" deal)?
Well, then you have received consumer surplus.
If you are an individual consumer, then consumer surplus is the monetary gain you
receive from purchasing a product at a lower price than you were willing and able to
pay. When you study total consumer surplus in economics, you are looking at the
total consumer surplus of all the consumers who are willing and able to pay a higher
price, but are getting the product at a lower price.
willing and able to pay, and you felt as if you got a "gonga" of a deal ("great" deal)?
Well, then you have received consumer surplus.
If you are an individual consumer, then consumer surplus is the monetary gain you
receive from purchasing a product at a lower price than you were willing and able to
pay. When you study total consumer surplus in economics, you are looking at the
total consumer surplus of all the consumers who are willing and able to pay a higher
price, but are getting the product at a lower price.
Consumer Surplus definition
Individual Consumer Surplus
Let's say the demand curve to the right is
the demand for widgets. Notice as you
take your mouse and click on the list of
names of individuals who are willing and
able to purchase a single widget, each
individual is willing and able to pay a
higher price for the widget, and yet
receive the widget at the lower
equilibrium price. This means each
individual consumer receives his or her
own consumer surplus.
the demand for widgets. Notice as you
take your mouse and click on the list of
names of individuals who are willing and
able to purchase a single widget, each
individual is willing and able to pay a
higher price for the widget, and yet
receive the widget at the lower
equilibrium price. This means each
individual consumer receives his or her
own consumer surplus.
If you are a supplier in the market, you will supply your product in the market as long
as you are able to cover your variable costs of production. As you produce more units
of output, your variable costs go up at an increasing rate and so the change in your
marginal cost of production also goes up. You are only willing to supply your good or
service in the market if you can cover your marginal costs. Many times, though,
consumers are willing to pay more than what it costs to produce. Whenever the price
is above the supply curve, the supplier is receiving producer surplus.
If you are an individual supplier, then producer surplus is the monetary gain you
receive from selling a product at a higher price at which you were willing to supply the
good or service. When you study total producer surplus in economics, you are
looking at the total producer surplus of all the suppliers who are willing to sell at a
lower price than the actual price paid by consumers.
as you are able to cover your variable costs of production. As you produce more units
of output, your variable costs go up at an increasing rate and so the change in your
marginal cost of production also goes up. You are only willing to supply your good or
service in the market if you can cover your marginal costs. Many times, though,
consumers are willing to pay more than what it costs to produce. Whenever the price
is above the supply curve, the supplier is receiving producer surplus.
If you are an individual supplier, then producer surplus is the monetary gain you
receive from selling a product at a higher price at which you were willing to supply the
good or service. When you study total producer surplus in economics, you are
looking at the total producer surplus of all the suppliers who are willing to sell at a
lower price than the actual price paid by consumers.
Producer Surplus definition
Market Consumer Surplus
The market consumer surplus takes into
account every single purchaser along the
demand curve. When you click on the
price changes on the table to the right of
the graph, you notice there are
consumers willing to purchase at each
and every price along the demand curve.
So, as you can see, the market consumer
surplus includes the little triangles above
consumer surplus rectangles already
established on the graph at $9, $8, $7, $6,
and $5. The entire colored rectangles
plus triangles represent the market
consumer surplus which is figured by 1/2
x bh or 1/2 base x height.
account every single purchaser along the
demand curve. When you click on the
price changes on the table to the right of
the graph, you notice there are
consumers willing to purchase at each
and every price along the demand curve.
So, as you can see, the market consumer
surplus includes the little triangles above
consumer surplus rectangles already
established on the graph at $9, $8, $7, $6,
and $5. The entire colored rectangles
plus triangles represent the market
consumer surplus which is figured by 1/2
x bh or 1/2 base x height.
Figuring the Area of Consumer Surplus
The total area of consumer surplus is the
area located below the demand curve and
above the price that is charged in the
market. As you can see by working the
graph to the right, the area of consumer
surplus stated a different way is the
triangle located above the equilibrium
price and below the demand curve.
Again, if you want to figure what the
dollar value of the area of consumer
surplus, just plug the appropriate
numbers into this formula-- 1/2 bh or 1/2
base x height.
area located below the demand curve and
above the price that is charged in the
market. As you can see by working the
graph to the right, the area of consumer
surplus stated a different way is the
triangle located above the equilibrium
price and below the demand curve.
Again, if you want to figure what the
dollar value of the area of consumer
surplus, just plug the appropriate
numbers into this formula-- 1/2 bh or 1/2
base x height.
Market Producer Surplus
The market producer surplus takes into
account every single supplier along the
supply curve. When you drag your
mouse along the price changes on the
table to the right of the graph, you notice
there are suppliers willing to supply their
product at each and every price along the
supply curve. So, as you can see, the
market producer surplus includes the
little triangles below producer surplus
rectangles already established on the
graph at $2, $3, $4, $5, and $6. The
entire colored rectangles plus triangles
represent the market producer surplus
which is figured by 1/2 x bh or 1/2 base x
height.
account every single supplier along the
supply curve. When you drag your
mouse along the price changes on the
table to the right of the graph, you notice
there are suppliers willing to supply their
product at each and every price along the
supply curve. So, as you can see, the
market producer surplus includes the
little triangles below producer surplus
rectangles already established on the
graph at $2, $3, $4, $5, and $6. The
entire colored rectangles plus triangles
represent the market producer surplus
which is figured by 1/2 x bh or 1/2 base x
height.
Figuring the Area of Producer Surplus
The total area of producer surplus is the
area located above the supply curve and
below the price charged in the market.
As you can see by working the graph to
the right, the area of producer surplus
stated a different way is the area located
below the price and above the supply
curve. Again, if you want to figure what
the dollar value of the area of producer
surplus, just plug the appropriate
numbers into this formula-- 1/2 bh or 1/2
base x height.
area located above the supply curve and
below the price charged in the market.
As you can see by working the graph to
the right, the area of producer surplus
stated a different way is the area located
below the price and above the supply
curve. Again, if you want to figure what
the dollar value of the area of producer
surplus, just plug the appropriate
numbers into this formula-- 1/2 bh or 1/2
base x height.
Individual Producer Surplus
Let's say the supply curve to the right is
the supply for widgets. Notice as you
take your mouse and drag it down the list
of individual firm names who are willing
and able to supply a single widget, each
individual firm is willing and able to sell a
widget at a lower price than the
equilibrium price, and yet receive the
equilibrium price. This means each
individual firm receives its own producer
surplus.
the supply for widgets. Notice as you
take your mouse and drag it down the list
of individual firm names who are willing
and able to supply a single widget, each
individual firm is willing and able to sell a
widget at a lower price than the
equilibrium price, and yet receive the
equilibrium price. This means each
individual firm receives its own producer
surplus.
In this unit on Consumer and Producer Surplus, you have learned about each of the following:
*Consumer Surplus Definition
*Individual Consumer Surplus
*Market Consumer Surplus
*Figuring the Area of Consumer Surplus
*Producer Surplus Definition
*Individual Producer Surplus
*Market Producer Surplus
*Figuring the Area of Producer Surplus
*Consumer Surplus Definition
*Individual Consumer Surplus
*Market Consumer Surplus
*Figuring the Area of Consumer Surplus
*Producer Surplus Definition
*Individual Producer Surplus
*Market Producer Surplus
*Figuring the Area of Producer Surplus
The definition and the area of consumer surplus are described in the lesson below:
The definition and the area of producer surplus are described in the lesson below:
Reffonomics.com 3 x 3 Videos (3-minute videos + 3 Multiple Choice Questions)
Individual Consumer Surplus (1:26 minutes)
Market Consumer Surplus (3:09 minutes)
Individual Producer Surplus (1:32 minutes)
Market Producer Surplus (2:54 minutes)
| Steven M. Reff Economics Lecturer University of Arizona (2007 - 2016) The 2015 University of Arizona Five-Star Faculty Award |