1.3.4 Consumer and producer surplus

Consumer surplus

The difference between the price consumers are willing and able to pay for a good or service and how much they do pay

• some people may have been willing to buy good at higher price, but got to purchase for lower

Producer surplus

The difference between the market price which firms receive and the price at which they are prepared to supply

• Producers would have been willing to sell for lower price, but got higher price as consumers are willing to pay higher prices

Where in graph is consumer surplus

Triangle between equilibrium point and below demand line

Where in graph is producer surplus

Triangle below equilibrium point and above supply line

Supply decrease effect on consumer surplus

= Decrease in consumer surplus

• Increase in price equilibrium, less people above price equilibrium

Supply increase effect on consumer surplus

= Increase in consumer surplus

• Decrease in price equilibrium, more people above price equilibrium

Demand decrease effect on producer surplus

= Decrease in producer surplus

• Price decreases, less firms below equilibrium point = less firms willing to produce for less profit

Demand increase effect on producer surplus

= Increase in producer surplus

• Price increases, more firms below equilibrium point = more firms willing to produce for more profit