1.2.8 Producer and Consumer surplus

Consumer surplus

When the price that consumers pay for a product or service is less than the price they are willing to pay

Producer surplus

Th difference between the price the producer is willing to supply goods for and the actual amount they are sold for

Consumer surplus

Area shaded above the market equilibrium price

Producer surplus

Area shaded below the market equilibrium price

What happens to surplus if there’s a decrease in demand?

Both consumer and producer surplus will decrease

What happens if there’s a decrease in supply?

Both consumer and producer surplus will decrease

Community surplus

The total benefit or welfare to society at a given price and quantity in a market