Chapter 4 - Consumer and Producer Surplus

ECON:1100 Final Exam

What does CS and PS help us with?

• analyze how much benefit producers and consumers receive from the market

• how the welfare of consumers and producers is affected by changes in prices

What is willingness to pay?

that is the maximum price at which consumers would by a good

Individual consumer surplus

the gain from the purchase of a good to one buyer, it is the difference between willingness to pay and price paid

What is total consumer surplus?

the sum of individual consumer surpluses of all buyers in a market

Where is the consumer surplus on a graph?

it is the area below the demand curve but above the price

What is producer surplus?

the difference the market price and the price producers are willing to sell

Individual producer surplus

the sum of individual producer surpluses of all sellers in a market

Where is producer surplus on a graph?

it is above the supply curve and below the price

What is total surplus?

it is the sum of producer and consumer surplus, CS+PS=TS