Consumer and producer surplus
| English | 中文 | Pinyin |
|---|---|---|
| consumer surplus/kənˈsuːmə ˈsɜːpləs/ | 消费者剩余 | xiāo fèi zhě shèng yú |
| producer surplus/prəˈdjuːsə ˈsɜːpləs/ | 生产者剩余 | shēng chǎn zhě shèng yú |
A decision you can investigate
- A buyer would pay more than the market price; a seller would accept less.
- The transaction creates gains on both sides, even though only one market price is paid.
Build the explanation
- Consumer surplus 消费者剩余 is willingness to pay minus actual payment, summed across purchased units. Producer surplus 生产者剩余 is receipts above the minimum required to supply those units. On linear diagrams they can be triangle areas, but not every curve produces a triangle.
- These are gains from trade under the model. Producer surplus is not automatically accounting profit because fixed costs and the time period matter. Consumer surplus is not a cash refund.
Work through the evidence
- Use Qd=120−2P and Qs=2P. Inverse demand intercepts price 60; inverse supply begins at 0. Equilibrium is P=30,Q=60. CS=½ × (60−30) × 60=900; PS=½ × (30−0) × 60=900 currency units.
- Demand shifts to Qd=160−2P, with intercept 80. New equilibrium P=40,Q=80 gives CS=½ × (80−40) × 80=1600 and PS=½ × 40 × 80=1600. Consumers pay a higher price yet surplus rises in this particular case because willingness to pay and quantity changed too.
What is original consumer surplus?
The triangular area is ½ × 30 × 60.
What is consumer surplus after the specified demand shift?
The new height is 80−40=40 and base 80; halve their product.
Consumer surplus is an amount of money that the seller pays back to the buyer.
It measures valuation above payment, not a refund.
Test the limits
- A higher price alone, with the original demand curve unchanged, usually reduces consumer surplus. The shift case has a different demand schedule, so a price-only comparison is incomplete.
- Adding CS and PS is not a complete social-welfare measure when third-party effects or distributional values matter. Demand represents willingness and ability to pay; limited incomes can affect the measured valuation.
Why is producer surplus not always profit?
The measures need not deduct the same costs over the same period.
Apply and explain your answer
- Why does the higher price after the demand shift not by itself prove lower consumer surplus?
- The demand curve and purchased quantity also changed, so the whole surplus area must be recalculated.
Match the terms to their meanings.
Use each term for its stated economic relationship.
Use the terms precisely
- consumer surplus: Total willingness to pay above the payment for units purchased.
- producer surplus: Receipts above the minimum required to supply the units sold.
Use Qd=120−2P and Qs=2P. Inverse demand intercepts price 60; inverse supply begins at 0. Equilibrium is P=30,Q=60. CS=½ × (60−30) × 60=900; PS=½ × (30−0) × 60=900 currency units. Demand shifts to Qd=160−2P, with intercept 80. New equilibrium P=40,Q=80 gives CS=½ × (80−40) × 80=1600 and PS=½ × 40 × 80=1600. Consumers pay a higher price yet surplus rises in this particular case because willingness to pay and quantity changed too.
A higher price alone, with the original demand curve unchanged, usually reduces consumer surplus. The shift case has a different demand schedule, so a price-only comparison is incomplete. Adding CS and PS is not a complete social-welfare measure when third-party effects or distributional values matter. Demand represents willingness and ability to pay; limited incomes can affect the measured valuation.
Consumer surplus is willingness to pay minus actual payment, summed across purchased units. Producer surplus is receipts above the minimum required to supply those units. On linear diagrams they can be triangle areas, but not every curve produces a triangle.