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Consumer and Producer Surplus

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CONSUMER SURPLUSCONSUMER SURPLUS

Willingness to payis the maximumamount that a buyer will pay for a goo!

" how mu#h the buyer $alues the gooConsumer surplusis the buyer%s willingness to

pay for a goo minus the amount the buyera#tually pays for it!

&he area below the eman #ur$e anabo$e the pri#e measures the #onsumersurplus in the mar'et!

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PRO(UCER SURPLUSPRO(UCER SURPLUS

Producer surplus is the amount a seller ispai for a goo minus the seller%s cost!

" the benefit to sellers parti#ipating in a mar'et!

&he area below the pri#e an abo$e the

supply #ur$e measures the prou#ersurplus in a mar'et!

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ND Football Tickets

)alue of &i#'et to Potential (emaners

Peter *+,,

Paul *-.,

Mary *-,,

/a#' *.,

/ill *.,

)alue of &i#'et to Potential Suppliers0

Professor ) *.,

Professor 1 *.,

Professor 2 *-,,

Professor 3 *-.,

Professor 4 *+,,

+,,

-.,

-,,

.,

Pri#e

&i#'ets , - + 5 6 .

Mary

Peter

Paul

/a#' an /ill

) an 1

2

3

4

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ND Football Tickets

E7uilibrium Pri#e 8 *-,,

Peter9 Paul an Mary buy ti#'ets fromProfessors )9 1 an 2! :f they all trae at thee7uilibrium pri#e9 oes it matter who buysfrom whom; No

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Consumer Surplus

Pri#e

>uantity

(

Po

>o

Maximum 1illingness to Pay for >o

1hat is pai

Consumer Surplus

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Original ConsumerSurplus

Change in Consumer Surplus0

Pri#e :n#rease

>uantity

New Consumer Surplus

Loss in Surplus0 Consumers paying more

Loss in Surplus0 Consumersbuying less

Pri#e

(

Po

>o

P-

>-

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Minimum ?mount Neee toSupply >o

Prou#er Surplus

Pri#e

>uantity

Po

>o

1hat is pai

Prou#er Surplus

S

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Loss in Effi#ien#y

&oo @igh of Pri#e APri#e BloorPri#e

>uantity

Po

>o

S

(

>L

New Consumer

Surplus

P@

New Prou#erSurplus

LostConsumer

Surplus

Lost Prou#er Surplus

(eaweight Loss

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New Prou#erSurplus

New ConsumerSurplus

Loss in Effi#ien#y

&oo Low of Pri#e APri#e CeilingPri#e

>uantity

Po

>o

S

(

>L

PL

LostConsumer

Surplus

Lost Prou#er Surplus

(eaweight Loss

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New Prou#erSurplus

&axRe$enues

New ConsumerSurplus

Loss in Effi#ien#y

&axationPri#e

>uantity

Po

>o

S

(

>L

PS

Lost Prou#er Surplus

P(

S&ax

Lost ConsumerSurplus (eaweight Loss

&ax

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SiDe of (eaweight Loss

&he eaweight loss of the tax will epen upon twofa#tors0" &he siDe of the tax

" &he reu#tion in the 7uantity sol

&he reu#tion in the 7uantity sol will epen uponthe elasti#ity of eman an supply

" &he more elasti# eman or supply is the larger theeaweight loss will be

" :f either eman or supply is pri#e inelasti# then theeaweight loss will small an #oul be Dero if perfe#tlyinelasti# Ano #hange in the 7uantity sol an #onsume

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Loss in Effi#ien#y

Subsiy

Po

>o

S

(

>@

P(

Subsiy Cost

PS SSubSubsiy

New Prou#erSurplus