1.2.8 Consumer and producer surplus summary

Consumer surplus is the difference between the amount consumers are willing to pay and the price they actually pay, whereas producer surplus is the difference between the amount producers are willing to sell a good for and the price they actually receive.

Consumer surplus is illustrated by the difference between the demand curve (the amount they are willing to pay) and the market equilibrium price (the amount they actually pay) – the darker shaded area on the diagram.

Producer surplus is shown by the difference between the supply curve (the amount they are willing to sell for) and the market equilibrium price (the amount they sell for) – the lighter shaded area on the diagram.

How changes in supply and demand affect consumer and producer surplus

The diagrams below illustrate how changes in supply and demand affect the size of consumer and producer surplus. Increases in demand and supply (right shifts) tend to increase both surpluses and vice versa.