1. Consumer and Producer Surplus
AP Economics
Mr. Bernstein
Module 49:
Consumer and Producer Surplus
October 23, 2014

2. AP Economics Mr. 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

3. AP Economics Mr. 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

4. AP Economics Mr. Bernstein
Calculating Consumer Surplus
The area below the
demand curve or WTP line
and above the price
Area = ½ base * height

5. AP Economics Mr. Bernstein
Producer Surplus
The difference between what a producer must receive to sell a unit and the actual price they receive

6. AP Economics Mr. 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

7. AP Economics Mr. Bernstein
Calculating Producer Surplus
The area above the
supply curve
and below the price
Area = ½ base * height

8. AP Economics Mr. 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)

9. AP Economics Mr. Bernstein
Total Surplus = Consumer Surplus + Producer Surplus