Willingness to Pay:
Using the Demand Curve to Measure Consumer Surplus:
The area below the demand curve and above the price measures the consumer surplus in a market
How a Lower Price Raises Consumer Surplus:
Buyers always want to pay less for the goods they buy, a lower price makes buyers of a good better off
What Does Consumer Surplus Measure?:
Cost and Willingness to Sell:
Using the Supply Curve to Measure Producer Surplus:
At any quantity, the price given by the supply curve shows the cost of the marginal seller, the seller who would leave the market first if the price were any lower
The area below the price and above the supply curve measures the producer surplus in a market
How a Higher Price Raises Producer Surplus:
Sellers always want to receive a higher price for the goods they sell
Producer surplus is used to measure the well-being of sellers in much the same way consumer surplus is used to measure the well-being of buyers
New sellers who enter the market willing the produce the good at a higher price, it increases the original quantity of supplies
The Benevolent Social Planner:
Evaluating the Market Equilibrium:
These three insights allow us to know that the market outcome makes the total surplus as large as it can be