surplus

Examples of surplus in the following topics:

• 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.

• Defining Producer Surplus

  • Producer surplus is the difference between the amount producers get for selling a good and the amount they want to accept for that good.
  • To find the resulting total producer surplus, all of the rectangles for the individual price levels are added together, and the total area is the total producer surplus.
  • Producer surplus is the shaded area directly above the supply curve, up to the equilibrium point.
  • Consumer surplus is the shaded area directly under the demand curve, up to the equilibrium point.
  • In the figure, producer surplus at different prices is represented by the pink rectangles.

• Gains from Markets

  • Gains in a market are referred to as total welfare or economic surplus.
  • Gains within a market are referred to as total welfare or economic surplus.
  • Within total welfare, economists look at consumer surplus and producer surplus .
  • The producer surplus is $10.
  • The total welfare (or economic surplus) is the sum of the consumer surplus and the producer surplus.

• Price Floor Impact on Market Outcome

  • Binding price floors typically cause excess supply and decreased total economic surplus.
  • If the floor is greater than the economic price, the immediate result will be a supply surplus.
  • This will lead to a surplus of supply.
  • Economic surplus, or total welfare, is the sum of consumer and producer surplus.
  • The government could then sell the surplus off at a loss in times of a food shortage.

• 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.
  • The total economic surplus equals the sum of the consumer and producer surpluses.
  • 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.

• 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.
  • An effective price ceiling will lower the price of a good, which means that the the producer surplus will decrease.
  • This translates into a net decrease total economic surplus, otherwise known as deadweight loss.

• Thinking about Efficiency

  • These benefits are represented as consumer surplus and producer surplus, respectively.
  • An efficient market maximizes total consumer and producer surplus.
  • Consumer and producer surplus are maximized at the market equilibrium - that is, where supply and demand intersect.

• Introduction to Deadweight Loss

  • When deadweight loss occurs, it comes at the expense of either the consumer economic surplus or the producer's economic surplus.
  • Consumer surplus is the gain that consumers receive when they are able to purchase a product for less than the price they are willing to pay; producer surplus is the benefit producers receive when the sell a product for more than they are willing to sell for.
  • Without the price ceiling, the producer surplus on the chart would be everything to the left of the supply curve and below the horizontal line where y equals the free market equilibrium price.
  • The consumer surplus would equal everything to the left of the demand curve and above the free market equilibrium price line.
  • With the price ceiling, instead of the producer's surplus going all the way to the pareto optimal price line, it only goes as high as the price ceiling.The consumer surplus extends down to the price ceiling, but it is limited on the right by Harberger's triangle.

• Trade Leads to Gains

  • Economists refer to these benefits from exchange as producer and consumer surplus.
  • Likewise, in the supply-demand diagram, producer surplus is the area below the equilibrium price but above the supply curve.
  • 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.