1.2.8: Consumer and Producer Surplus

• Producer surplus: Difference between the price the supplier is willing to sell at and the price they actually sell at
• On a supply demand graph, producer surplus is the area above the supply curve, but below the price level
• Consumer surplus: Difference between the price the consumer is willing to pay, and the price they actually pay
• On a supply demand graph, consumer surplus is the area below the demand curve but above the price level
• More inelastic demand means consumer surplus will likely be higher, and more inelastic supply means producer surplus will likely be higher
• Decrease in either supply or demand (left shift) would cause a decrease in both consumer and producer surplus
• Total welfare to society is consumer surplus + producer surplus