Consumer surplus • What is it? • The difference between what you paid, and what you were willing and able to pay. • What does it look like? • It is the area below the demand curve, and above the equilibrium price.
Consumer surplus Equilibrium Price
Producer Surplus • What is it? • The amount a seller is paid, minus the seller’s cost. • What does it look like? • It is the area above the supply curve, and below the equilibrium price.
The magic of perfectly competitive markets • At equilibrium, both consumer and producer surplus are at their maximum • Any interference with the equilibrium price in perfectly competitive markets will reduce total consumer and producer surplus
What effect will rent control have on Consumer and Producer Surplus? Who are the consumers? Who are the producers?
Price Effect on consumer & producer surplus Society’s Consumer loss surplus Equilibrium Price Producer surplus Rent Control
Any interference with the equilibrium price in perfectly competitive markets will reduce total consumer and producer surplus
What effect will a minimum wage have on Consumer and Producer Surplus? Who are the consumers? Who are the producers?
Price Effect on consumer & producer surplus Consumer surplus Society’s loss Minimum wage Equilibrium Price Producer surplus