Consumer and producer surplus: equilibrium, deadweight loss, and graph problems

Consumer Surplus

Area below the demand curve, above price, up to quantity; calculated as 1/2 × base × height for triangles.

Producer Surplus

Area above the supply curve, below price, up to quantity; conceptually defined as the price received minus minimum willingness to accept.

Total Surplus

The combined sum of consumer and producer surplus; maximized at equilibrium and shaped as one large triangle.

Deadweight Loss (DWL)

Loss to society from operating away from equilibrium, typically represented as a triangle between equilibrium and new quantity.

Effect of Price Above Equilibrium

When price is above equilibrium, consumer surplus shrinks to a small triangle and producer surplus becomes a square plus a triangle; DWL triangle sits to the right of the new quantity.

Overproduction

Occurs when quantity exceeds equilibrium; characterized by both positive and negative regions in consumer and producer surplus, with DWL shifting to the right.

Total Revenue Formula

Calculated as price multiplied by quantity; does not necessitate calculating the area of a rectangle.

Total Cost

Represented as the area below the supply curve up to the quantity.

Total Surplus Shortcut

At equilibrium, total surplus minus deadweight loss (DWL) can be used for quick calculations.

Triangle Area Calculation

Always multiply by 1/2 for triangles; a common mistake in exams is neglecting this calculation.