consumer + producer surplus

• Welfare analysis


  Understanding whether resources are being allocated efficiently or not
• Consumer surplus


  The difference between the price consumers are willing and able to pay for a good or service and the price that they actually pay
• Consumer surplus


  • Normally a triangle shape found below the demand curve and above the price line
• Finding consumer surplus on a diagram

  1. Identify price and quantity

  2. Area below demand curve and above price line gives consumer surplus
• Price increases


  Consumer surplus decreases
• Price decreases


  Consumer surplus increases
• Producer surplus


  The difference between the price producers are willing and able to supply a good or service for and the price that they actually receive
• Producer surplus


  • Usually a triangle shape found above the supply curve and below the price line
• Finding producer surplus on a diagram

  1. Identify price and quantity

  2. Area above supply curve and below price line gives producer surplus
• Price increases


  Producer surplus increases
• Price decreases


  Producer surplus decreases
• Society's surplus


  The sum of consumer and producer surplus
• Supply shifts left


  Equilibrium price increases, equilibrium quantity decreases, consumer surplus decreases
• Demand shifts right


  Equilibrium price increases, equilibrium quantity increases, producer surplus increases
• Consumer and producer surplus shapes can sometimes be trapeziums rather than triangles