1.2.8 Consumer & Producer Surplus

• A consumer surplus is the difference between the price the consumer is willing and able to pay, and the price they actually pay.
• The consumer surplus is always represented by the area above the market price and below the demand curve.
• Producer surplus is the difference between the price the producer is willing to charge and the price they actually charge.
• The producer surplus is always represented by the area below the market price and above the supply curve.
• Economic welfare is the total benefit society receives from an economic transaction.
• The economic welfare is the sum of the consumer surplus and the producer surplus, also known as the community surplus.