Consumer Surplus Consumer surplus The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

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Presentation transcript:

Consumer Surplus Consumer surplus The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Producer Surplus Producer surplus The difference between the lowest price a firm would have been willing to accept and the price it actually receives.

Community Surplus of Competitive Markets Economic efficiency Occurs where the sum of consumer surplus and producer surplus is at a maximum. Community Surplus Equals the Sum of Consumer Surplus and Producer Surplus

Deadweight loss from an indirect tax £ S + tax S P2 Q2 P1 P2 - tax D O Q1 Q