Consumer and Producer Surplus

For most of the products that you buy, you would probably be willing to pay more than the price if you had to
The difference between what you are willing to pay and what you must pay is consumer surplus
Consumer surplus: consumers gain from exchange
Total consumer surplus: quantity measure by the area beneath the demand curve and above the price
- Can find it by adding up consumer surplus for each consumer and for each unit
area beneath the downward-sloping demand curve
- calculated by 1/2(bh)

Producer surplus: the producers gain for exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity
- Ex: is price of oil is $40 per barrel and Nigeria can produce it at $5 per barrel, Nigeria earns a producer surplus of $35 per barrel
Total producer surplus: an amount measured by the area above the supply curve and below the price up to the quantity traded
If you add consumer and producer surplus we get a measure of the total gains from trade to market participants
area above individual firm supply curve and below the price line