consumer and producer surplus

• Consumer surplus


  A measure of the welfare that people gains from goods and services
• Consumer surplus


  The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they actually do pay
• Consumer surplus is indicated by the area under the demand curve and above the market prices
• Higher supply costs


  Lead to an inward shift of supply and a fall of consumer surplus from ABC to DBE
• An outward shift of demand


  Causes consumer surplus to rise from ABC to GHI
• When demand is inelastic


  There is greater consumer surplus because some consumers are willing to pay a very high price to continue consuming the product
• Producer surplus


  The difference between the price producers are willing and able to supply a good or service for and the price they actually receive
• Higher prices provide an incentive to supply more to the market due to the profit motive
• Producer surplus is indicated by the area above the supply curve and below the market price
• Lower supply costs


  Cause an outward shift of supply, a fall in market price and an increase in quantity Producer surplus increases from DEF to ABC
• At equilibrium, consumer surplus is BCD and producer surplus is ABD
• Consumer and producer surplus are important when discussing the effects of different government interventions such as taxes and subsidies