Economics: Producer and Consumer Surpluss

S (Supply)

Marginal Social Cost (MSC) and Marginal Public Cost (MPC)

D (demand)

Marginal Social benifits (MSB) and Marginal Public benefits (MPB)

Consumer Surplus

difference between the amounts people would willingly pay for various amounts of goods and services and the amounts they do pay at market prices

Producer Surplus

Extra benefit enjoyed by the producers, who sell their product for more than they were willing and able to sell it for. The area below the equilibrium price but above the supply curve.

Community Surplus

Total welfare, combination of consumer and producer surplus

When is community surplus maximized

at the equilibrium

Allocative efficiency

At equilibrium, no individual in society can be better off, without making someone else worse off

Marginal Benefit to consumers = Marginal costs to producers.

MB=MC

Under/over allocation leads too?

welfare loss

Subsidy welfare loss

government spending (considering opportunity cost and tax payer dollars consumed) > consumer and producer surplus