Consumer surplus

1
Consumer surplus

• And
• Producer surplus

2
Consumer surplus

• What is it?
• The difference between what you paid,
• and what you were willing and able to pay.
• What does it look like?
• It is the area below the demand curve,
• and above the equilibrium price.

3
Consumer surplus
8








S
7
6
Consumer surplus
5
Equilibrium Price
PRICE per Greebe
4
3
2
D
1
1
2
3
6
12
5
11
10
9
8
7
4
13
14
15
16
(hundreds of Greebes)
QUANTITY
4
Producer Surplus

• What is it?
• The amount a seller is paid,
• minus the sellers cost.
• What does it look like?
• It is the area above the supply curve,
• and below the equilibrium price.

5
Producer surplus
8








S
7
6
5
Equilibrium Price
PRICE per Greebe
4
Producer surplus
3
2
D
1
1
2
3
6
12
5
11
10
9
8
7
4
13
14
15
16
(hundreds of Greebes)
QUANTITY
6
Consumer producer surplus
8








S
7
6
Consumer surplus
5
Equilibrium Price
PRICE per Greebe
4
Producer surplus
3
2
D
1
1
2
3
6
12
5
11
10
9
8
7
4
13
14
15
16
(hundreds of Greebes)
QUANTITY
7
The magic of perfectly competitive markets

• At equilibrium, both consumer and producer
  surplus are at their maximum
• Any interference with the equilibrium price in
  perfectly competitive markets will reduce total
  consumer and producer surplus

8
What effect will rent control have on Consumer
and ProducerSurplus?

• Who are the consumers?
• Who are the producers?

9
Price Effect on consumer producer surplus
8








S
7
Societys loss
6
Consumer surplus
5
Equilibrium Price
PRICE per apartment (in hundreds)
4
3
Rent Control
Producer surplus
2
D
1
1
2
3
6
12
5
11
10
9
8
7
4
13
14
15
16
(hundreds of apartments)
QUANTITY
10
Any interference with the equilibrium price in
perfectly competitive markets will reduce total
consumer and producer surplus
11
What effect will a minimum wage have on
Consumer and ProducerSurplus?

• Who are the consumers?
• Who are the producers?

12
Price Effect on consumer producer surplus
8








S
7
Societys loss
Consumer surplus
6
Minimum wage
5
PRICE per Worker (wage)
4
Equilibrium Price
3
Producer surplus
2
D
1
1
2
3
6
12
5
11
10
9
8
7
4
13
14
15
16
(hundreds of Workers)
QUANTITY