Surplus value

Examples of Surplus value in the following topics:

• Loss Restoration

  • Under US GAAP, once an asset is impaired its value cannot be increased regardless of what its fair market value is; once the value of an asset is decreased, it stays at that value unless its market value declines again.
  • An increase in the asset's value should not be reported on the income statement; instead an equity account is credited called "Revaluation Surplus. " Revaluation surplus is reported in the other comprehensive income sub-section of the owner's equity section in the balance sheet.
  • The revaluation surplus account accounts for increases in asset value, and it also offsets any downward revisions, such as an impairment loss, in asset value.
  • When the credit balance in the revaluation surplus account zeros out, an impairment loss is reported on the income statement.
  • Only assets accounted for under the revaluation model can have their book value adjusted to market value.

• How Taxes Impact Efficiency: Deadweight Losses

  • Deadweight loss can generally be referenced as a loss of surplus to either the consumer, producer, or both.
  • The area represented by the Harberger's triangle results from the intersection of the supply and demand curves above market equilibrium resulting in a reduction in consumer surplus and producer surplus relative to their value before the imposition of the tax.
  • The loss of the surplus, not recouped by tax revenues, is deadweight loss.

• Impacts of Price Changes on Consumer Surplus

  • Consumer surplus is defined, in part, by the price of the product.
  • Assuming that there is no shift in demand, an increase in price will therefore lead to a reduction in consumer surplus, while a decrease in price will lead to an increase in consumer surplus.
  • This shortage will create a deadweight loss, or a market wide loss of efficiency and value that neither producer nor consumers obtain.
  • Necessarily, this reflects a drop in consumer surplus.
  • An increase in the price will reduce consumer surplus, while a decrease in the price will increase consumer surplus.

• The Financial Account

  • When financial account has a positive balance, we say that there is a financial account surplus.
  • If foreigners are investing in a country, that is an inbound flow and counts as a surplus item on the financial account.
  • Inbound capital flows (from sales of the account's foreign currency), especially when combined with a current account surplus, can cause a rise in value (appreciation) of a nation's currency, while outbound flows can cause a fall in value (depreciation).
  • If a government (or, if authorized to operate independently in this area, the central bank itself) does not consider the market-driven change to its currency value to be in the nation's best interests, it can intervene.
  • This contributes to a financial account surplus.

• Price Ceiling Impact on Market Outcome

  • A binding price ceiling will create a surplus of supply and will lead to a decrease in economic surplus.
  • A price ceiling will also lead to a more inefficient market and a decreased total economic surplus.
  • Economic surplus, or total welfare, is the sum of consumer and producer surplus.
  • This translates into a net decrease total economic surplus, otherwise known as deadweight loss.
  • If individuals who value the good most are not capable of purchasing it, there is a potential for a higher amount of dead weight loss.

• Thinking about Efficiency

  • These benefits are represented as consumer surplus and producer surplus, respectively.
  • An efficient market maximizes total consumer and producer surplus.
  • Some economic policies may be seen as increasing efficiency at a cost to other goals or values, though this is certainly not a universal tradeoff.
  • Consumer and producer surplus are maximized at the market equilibrium - that is, where supply and demand intersect.

• Trade Leads to Gains

  • Since you value the car at $3,000 more than you paid for it, $3,000 is the benefit that you gained from the transaction.
  • Economists refer to these benefits from exchange as producer and consumer surplus.
  • The sum of consumer and producer surplus is called economic, or social, surplus, and reflects the total amount of benefit received by society when consumers and producers trade.
  • One way to look at whether a transaction is a Pareto improvement is to ask whether it increases consumer or producer surplus without decreasing either party's surplus.
  • Consumer surplus is the area between the demand line and the equilibrium price, and producer surplus is the area between the supply line and the equilibrium price.

• Tariffs

  • Tariffs can also be classified on how the duty amount is valued:
  • Ad valorem tariffs: Tariffs based on a percentage of the value of each item.
  • For example, an ad valorem tariff would be a 20% tax on the value of every car imported into a country.
  • For example, a compound tariff might consist of a fixed $100 duty plus 10% of the value of every imported car.
  • This benefits domestic producers by increasing producer surplus, but domestic consumers see a small consumer surplus.

• Impact of Changing Price on Producer Surplus

  • Producer surplus is affected by many different factors.
  • Lower prices result in lower potential producer surplus and goods supplied: with a lower equilibrium price, the producer surplus triangle will be smaller.
  • Decreases in the supply curve will cause decreases in producer surplus.
  • Increases in the supply curve will cause increases in producer surplus.
  • Producer surplus is zero because the price is not flexible.

• The Demand Curve and Consumer Surplus

  • Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they do pay.
  • Consumer surplus plus producer surplus equals the total economic surplus in the market.
  • Generally, the lower the price, the greater the consumer surplus.
  • Another way to define consumer surplus in less quantitative terms is as a measure of a consumer's well-being.
  • An individual's customer surplus for a product is based on the individual's utility of that product.