Consumer and Producer Surplus in one diagram
At the equilibrium, consumer surplus is RSP, producer surplus is QRS
Price
‘Consumer and producer
surplus are important
concepts to use when
discussing the effects of
different government
interventions in markets.
Consumer
‘Changes in conditions of
market supply and
demand will bring about
changes in the level of
consumer and producer
surplus (welfare)What is Consumer Surplus?
Consumer surplus is a measure of the welfare that people gain from
consuming goods and services
* Consumer surplusisthe Price
difference between the total,
amount that consumers are
willing and able to pay for a
good or service (shown by the
demand curve) and the total
amount they actually do pay
(ie. the market price). A
* Consumer surplus is indicated
by the area under the
demand curve and above the
market price.
Demand
at QuantityWhat is Producer Surplus?
Producer surplus is a measure of producer welfare
* Producer surplus is the
difference between what
producers are willing and able
tosupplyagoodforandthe 8
price they actually receive
* Producer surplus shown by
area above the supply curve
and below the market price
* Higher prices provide an
incentive to supply more to
the market (profit motive)
Price
Supply