2.4: Consumer and Producer Surplus

• Consumer surplus


  Extra welfare consumers receive over and above what they are willing to pay for a good or service
• Producer surplus


  Profit that firms receive over and above the price they are willing to accept for supplying a good or service
• Impact on consumer surplus when price increases

  Reduces overall size of consumer surplus, affects the welfare that society receives from consuming the good
• Impact on consumer surplus when price decreases

  Increases overall size of consumer surplus
• Impact on producer surplus when price increases

  Increases overall size of producer surplus
• Impact on producer surplus when price decreases

  Reduces overall size of producer surplus