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

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

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

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

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

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

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

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)

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