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  • Consumer and Producer Surplus

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    Řana Ahtisham Ali
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    Consumer surplus is the difference between what consumers are willing to pay for a good and the actual price paid, represented by the area below the demand curve and above the price. Producer surplus is the difference between the price received and the producer's costs, represented by the area below the price and above the supply curve. A deadweight loss occurs from prices that are too high or too low, reducing both consumer and producer surplus and leading to an inefficient allocation of resources.

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    introduction

    Titolo originale

    IntroLec8 (1)

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    Consumer surplus is the difference between what consumers are willing to pay for a good and the actual price paid, represented by the area below the demand curve and above the price. Producer surplus is the difference between the price received and the producer's costs, represented by the area below the price and above the supply curve. A deadweight loss occurs from prices that are too high or too low, reducing both consumer and producer surplus and leading to an inefficient allocation of resources.

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    © All Rights Reserved
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    7 visualizzazioni14 pagine

    Consumer and Producer Surplus

    Caricato da

    Řana Ahtisham Ali
    Consumer surplus is the difference between what consumers are willing to pay for a good and the actual price paid, represented by the area below the demand curve and above the price. Producer surplus is the difference between the price received and the producer's costs, represented by the area below the price and above the supply curve. A deadweight loss occurs from prices that are too high or too low, reducing both consumer and producer surplus and leading to an inefficient allocation of resources.

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    © All Rights Reserved
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    di 14

    Consumer and Producer Surplus

    CONSUMER SURPLUS
    Willingness to pay is the maximum
    amount that a buyer will pay for a good.
    how much the buyer values the good
    Consumer surplus is the buyers willingness to
    pay for a good minus the amount the buyer
    actually pays for it.

    The area below the demand curve and


    above the price measures the consumer
    surplus in the market.

    PRODUCER SURPLUS
    Producer surplus is the amount a seller is
    paid for a good minus the sellers cost.
    the benefit to sellers participating in a market.

    The area below the price and above the


    supply curve measures the producer
    surplus in a market.

    ND Football Tickets
    Value of Ticket to Potential Demanders
    Peter

    $200

    Paul
    Mary
    Jack
    Jill

    $150
    $100
    $50
    $50

    Value of Ticket to Potential Suppliers:


    Professor V
    Professor W
    Professor X
    Professor Y
    Professor Z

    $50
    $50
    $100
    $150
    $200

    Price
    Peter

    200

    Paul

    150

    Mary
    100

    X
    Jack and Jill

    50
    V and W

    Tickets

    ND Football Tickets
    Equilibrium Price = $100

    Price
    Consumer Surplus

    Peter, Paul and Mary buy tickets from


    Professors V, W and X. If they all trade at the
    equilibrium price, does it matter who buys
    from whom? No

    Peter

    200

    Paul

    150

    Gains:
    Peter
    Paul
    Mary
    V
    W
    X

    = $200 - $100 = $100


    = $150 - $100 = $50
    = $100 - $100 = $0
    = $100 - $50 = $50
    = $100 - $50 = $50
    = $100 - $100 = $0

    Mary
    100

    X
    Jack and Jill

    50
    V and W

    Total Gain: $250

    Producer Surplus

    Tickets

    Consumer Surplus
    Price

    Consumer Surplus

    Maximum Willingness to Pay for Qo

    Po

    What is paid

    D
    Qo

    Quantity

    Change in Consumer Surplus:


    Price Increase
    Price
    New Consumer Surplus
    Original Consumer
    Surplus

    Loss in Surplus: Consumers paying more


    P1
    Po

    Loss in Surplus: Consumers


    buying less

    Q1

    Qo

    Quantity

    Producer Surplus
    Price

    Producer Surplus
    Po

    What is paid

    Minimum Amount Needed to


    Supply Qo
    Qo

    Quantity

    Consumer and Producer


    Surplus
    Price
    Consumer
    Surplus

    Po

    Producer Surplus

    D
    Qo

    Quantity

    Loss in Efficiency
    Too High of Price (Price Floor)
    Price

    Deadweight Loss
    Lost
    Consumer
    Surplus

    New Consumer
    Surplus

    PH
    Po

    Lost Producer Surplus

    New Producer
    Surplus

    D
    QL

    Qo

    Quantity

    Loss in Efficiency
    Too Low of Price (Price Ceiling)
    Price

    Deadweight Loss
    Lost
    Consumer
    Surplus

    New Consumer
    Surplus

    Po

    Lost Producer Surplus

    PL
    New Producer
    Surplus

    D
    QL

    Qo

    Quantity

    Loss in Efficiency
    Taxation
    STax
    Price
    Tax
    New Consumer
    Surplus

    Lost Consumer
    Surplus

    PD
    Tax
    Revenues

    Po

    Deadweight Loss

    Lost Producer Surplus

    PS
    New Producer
    Surplus

    D
    QL

    Qo

    Quantity

    Size of Deadweight Loss


    The deadweight loss of the tax will depend upon two
    factors:
    The size of the tax
    The reduction in the quantity sold

    The reduction in the quantity sold will depend upon


    the elasticity of demand and supply
    The more elastic demand or supply is the larger the
    deadweight loss will be
    If either demand or supply is price inelastic then the
    deadweight loss will small and could be zero if perfectly
    inelastic (no change in the quantity sold and consumed)

    Loss in Efficiency
    Subsidy
    Price

    Gain in Producer Surplus


    New
    Consumer
    Surplus

    PS

    SSub

    Subsidy

    Gain in Consumer Po
    Surplus

    PD

    New Producer
    Surplus

    Deadweight Loss

    Subsidy Cost

    Qo

    QH

    Quantity

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