Transcript consumer surplus

Module
Micro: 13
Econ: 49
Consumer and
Producer Surplus
KRUGMAN'S
MICROECONOMICS for AP*
Margaret Ray and David Anderson
What you will learn
in this Module:
• The meaning of consumer surplus and
its relationship to the demand curve.
• The meaning of producer surplus and
its relationship to the supply curve.
Consumer Surplus
Consumer surplus
measures the
difference between
what a consumer is
willing to pay for a
good and what he/she
actually has to pay.
Willingness to Pay
• Willingness to pay and the demand curve
• Willingness to pay and consumer surplus
Calculating Consumer
Surplus
Producer Surplus
Producer surplus
measures the
difference between
the price producers
receive for a good and
the cost of producing
the good.
Cost and Producer
Surplus
• Cost and the supply curve
• Cost and producer surplus
Calculating Producer
Surplus
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 deceases (costs are the
same, but the 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)
Total Surplus =
Consumer Surplus + Producer Surplus