1. Consumer, Producer and Community Surplus How much would you be willing to pay for this? Or this?

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

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

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

5. The incidence of taxation on Community Surplus Deadweight welfare loss from an indirect tax

6. Deadweight loss from an indirect tax O S £ Q D P1P1 Q1Q1 Before-tax situation

7. O S £ Q D P1P1 Q1Q1 Before-tax situation Deadweight loss from an indirect tax Consumer surplus Consumer surplus

8. O S £ Q D P1P1 Q1Q1 Consumer surplus Consumer surplus Producer surplus Producer surplus Before-tax situation Deadweight loss from an indirect tax

9. O S £ Q D P1P1 Q1Q1 S + tax Q2Q2 P2P2 P 2   tax Deadweight loss from an indirect tax

10. O S £ Q D P1P1 Q1Q1 S + tax Q2Q2 P2P2 1 2 3 4 6 5 P 2   tax Deadweight loss from an indirect tax

11. O S £ Q D P1P1 Q1Q1 S + tax Q2Q2 P2P2 1 2 3 4 6 5 P 2   tax Deadweight loss from an indirect tax

12. O S £ Q D P1P1 Q1Q1 S + tax Q2Q2 P2P2 1 2 3 4 6 5 P 2   tax Deadweight loss from an indirect tax

13. O S £ Q D P1P1 Q1Q1 S + tax Q2Q2 P2P2 1 2 3 4 6 5 P 2   tax Tax revenue for government Deadweight loss from an indirect tax

14. O S £ Q D P1P1 Q1Q1 S + tax Q2Q2 P2P2 1 2 3 4 6 5 P 2   tax Deadweight loss from tax Deadweight loss from an indirect tax