Consumer and Producer Surplus

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Consumer and Producer Surplus
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In a typical demand function, D(q), relating the
price, p, to the quantity demanded, q, as the
quantity increases the price decreases.
p
D(q)
q
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Over a period of time the price tends to settle
at a fixed price . This price is called the
market or equilibrium price, and is paired with
the quantity demanded, .
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If a consumer is willing to pay a higher price
than the market price (p), this difference
between what one is willing to pay and what is
actually paid represents a savings to the
consumer. The total of all savings is called the
consumers surplus (CS).
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Graphically
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CS
D(q)
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(No Transcript)
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Since y is a function, and using the
concept of the area between curves
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• Example Find the consumer surplus for the
  demand function given by
• When x 3, we have
  Then,

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The demand function for a certain product is

• where p is the wholesale unit price in dollars
  and q is the quantity demanded each week. Find
  the CS if the wholesale price is set at 5/disc.

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We use a similar approach to find the producers
surplus (PS). A typical supply function increases
as the quantity increases because a supplier
tends to increase production as the price
increases.
pS(q)
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If a producer sells at market equilibrium as
opposed to a lesser price the difference becomes
a surplus for the producer.
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The producers surplus is given by
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A supplier will make q hundred units available in
the market when the wholesale unit price is

• dollars. Determine the producers surplus if the
  supply and demand are in equilibrium when x 100.

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When both functions are given the graph is
similar to the following
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• Example Given
• find each of the following
• The equilibrium point.
• b) The consumer surplus at the equilibrium point.
• c) The producer surplus at the equilibrium point.

(2, 9)
7.33
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A product has a demand of p 144 - and
supply function of p 48 0.5 where p is
in dollars and x is in thousands. If the market
unit price is set at the equilibrium price, find
the CS and PS.