Consumer Surplus And Producer Surplus

When price decreases what happens to producer surplus?

Producer surplus decreases. Some sellers will leave the market as the lower price will no longer cover all their costs and the remaining sellers will receive a lower price decreasing their individual producer surplus.

When price increases what happens to producer surplus?

Producer surplus will increase as new sellers will enter the market and existing sellers will receive a higher price causing their individual producer surplus to increase.

Willingness-to-pay

The maximum amount a buyer will pay for a good or service and reflects the buyer's utility of the good or service. A buyer will never pay more for a good or service than the utility they get from it.

Willingness-to-sell

The minimum amount a seller will accept for a good or service. This amount covers all of the costs of producing the good including the seller's opportunity cost. This is sometimes referred simply as costs.

Where on supply and demand graph is consumer surplus located?

Above the price line and below the demand curve

Where on supply and demand graph is producer surplus located?

Below the price line and above the supply curve

Total Surplus

Consumer Surplus and Producer Surplus

When price increases what happens to consumer surplus?

Consumer surplus will decrease because some buyers will stop buying the good and for buyers who keep buying the higher price will lower their individual consumer surplus.

When price decreases what happens to consumer surplus?

Consumer surplus will increase. There will be new buyers and existing buyers will pay a lower price increasing their individual consumer surplus

Deadweight loss (welfare loss/cost)

The surplus lost when the price doesn't reflect the equilibrium price. This happen when there are taxes put on a market and when price floors or price ceiling are put on a market.

A market is efficient when ______________________

1. There is no way to make one person better off without making another person worse off. 2. All possible surplus is taken by some player in the market. 3. There is no deadweight loss (welfare cost/loss)

Producer Surplus

The difference between the actual price and the willingness-to-sell A market's producer surplus (PS) is the summation of all the individual seller's producer surplus

Consumer surplus

The difference between the willingness-to-pay and the actual price paid for the good or service. A market's consumer surplus (CS) is the summation of all the individual buyer's consumer surplus