AP Economics

Mr. Bernstein

Module 49: Consumer and Producer Surplus

October 23, 2014

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AP EconomicsMr. Bernstein

Consumer Surplus

• The difference between what a consumer is willing to pay for a good or service and what they actually have to pay

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AP EconomicsMr. Bernstein

Willingness to Pay• Willingness to Pay is found along the demand curve• Purchases that can be made at lower prices create a net gain

in happiness for the consumer; measured in dollars we call it Consumer Surplus

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AP EconomicsMr. Bernstein

Calculating Consumer Surplus• The area below thedemand curve or WTP lineand above the price• Area = ½ base * height

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AP EconomicsMr. Bernstein

Producer Surplus

• The difference between what a producer must receive to sell a unit and the actual price they receive

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AP EconomicsMr. Bernstein

Cost and Producer Surplus• Producer Cost is found along the supply curve• Producer Surplus is the difference between price and the

cost of producing a unit

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AP EconomicsMr. Bernstein

Calculating Producer Surplus• The area above thesupply curve and below the price• Area = ½ base * height

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AP EconomicsMr. Bernstein

Changes in Price Affect Consumer and Producer Surplus

• If price decreases:• Consumer surplus increases(willingness to pay is the same, but the

price paid is lower)• Producer surplus decreases (costs are the same but price received is

lower)

• If price increases:• Consumer surplus decreases (willingness to pay is the same but the

price paid is higher)• Producer surplus increases (costs are the same but the price received

is higher)

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AP EconomicsMr. Bernstein

Total Surplus = Consumer Surplus + Producer Surplus