1. 1.2.8 Unit content Students should be able to:
Distinguish between consumer and producer surplus
Use supply and demand diagrams to illustrate consumer and producer surplus
Analyse how changes in supply and demand might affect consumer and producer surplus

2. Consumer surplus
Consumer surplus is the difference between what a consumer is willing to pay and what they actually did pay.
Consumer surplus is a measure of consumer welfare.

3. Producer surplus
Producer surplus is the difference between the price at which a firm is willing to supply and the price they actually received
Producer surplus is a measure of producer welfare.

4. Consumer and producer surplus graph
Draw a diagram showing both consumer and producer surplus on the same graph

5. Consumer surplus and PED
What is the impact of PED on consumer surplus?
Draw two diagrams – one showing inelastic demand and one showing elastic demand, what do you notice about consumer surplus?

6. Consumer surplus and changes in market conditions: increase in costs
Draw a diagram showing supply and demand for biscuits.
What will happen to equilibrium if supply costs are increased?
What will happen to consumer surplus?

7. Consumer surplus and changes in market conditions: increase in demand
Draw a diagram showing supply and demand for biscuits.
What will happen to equilibrium if biscuits are discovered to be healthy (!)?
What will happen to consumer surplus?

8. What is the impact of lower supply costs on producer surplus?
Draw a diagram showing supply and demand for biscuits.
What will happen to equilibrium if supply costs are lowered?
What will happen to producer surplus?

9. What is the impact of higher demand on producer surplus?
Draw a diagram showing supply and demand for biscuits.
What will happen to equilibrium if biscuits are discovered to be healthy (!)?
What will happen to producer surplus?