The Economics Classroom

2.5 Consumer and producer surplus 

Instructions: ​The table below shows the demand and supply for strawberries. Use the data to
answer the questions that follow.

Part 1 - Individual Consumer Surplus:

The table below represents an ​individual’s ​monthly demand for strawberries at range of prices.

Price per kg Quantity

($) demanded (kg)

0.25 7

0.75 5

1.25 4

1.75 3

2.25 2

2.75 1

3.25 0

1. Define consumer surplus:

2. Assume the price of strawberries is $1.75 per kg

a. How many kgs would the individual buy monthly?

b. How much would the individual have been willing to pay for:
i. The first box he buys?

ii. The second box he buys?

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iii. The third box he buys?

c. Calculate the individual’s total ​consumer surplus​ when he can buy strawberries at
a price of $1.75.

3. Assume the price of strawberries falls to $1.00

a. How many kgs of strawberries will the consumer now buy?

b. What is the individual’s consumer surplus when the price is $1.00?

c. Why does consumer surplus increase when the price decreases?

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Part 2 - Market Consumer and Producer Surplus

Price per kg Quantity Quantity

($) demanded (kg) supplied (kg)

0.25 6000 0

0.75 5200 600

1.25 4400 1400

1.75 3600 2200

2.25 2800 3000

2.75 2000 3800

3.25 1200 4600

3.75 400 5400

4. Plot the demand and supply curves on the graph below.

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6. Explain why the downward sloping demand curve represents the ​marginal benefits​ of
strawberry consumers.

7. What is the equilibrium price and quantity of strawberries (you can estimate from the
graph)?

8. How much consumer surplus does a person who would have been willing to pay $3.50
for a kg of strawberries have at the equilibrium price?

9. How much consumer surplus does a person who would have been willing to pay $1.50
have at the equilibrium price?
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10. Calculate the total amount of consumer surplus in the market for strawberries at the
equilibrium price.

11. Define producer surplus

12. Why do some strawberry farmers have more producer surplus than others?

13. How much producer surplus will a farmer whose marginal cost of strawberries was only
$1.00 have at the equilibrium price?

14. How much producer surplus will a farmer whose marginal cost of strawberries is $3.00
have at the equilibrium price?
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15. Calculate the total amount of producer surplus in the market for strawberries at the
equilibrium price.

16. Calculate the ​community surplus (CS+PS, otherwise known as total welfare)​ when the
market is in equilibrium.

Part 3 - Disequilibrium and Welfare Loss: ​If the market for strawberries is in ​disequilibrium​ ,
then the price is either too high or too low, leading to a ​loss of total welfare​ (or total surplus).

Refer to your graph in Question #4

16. Assume the price of strawberries is $2.75, but demand and supply have not changed
from the level expressed in your table and graph above.
a. What will happen to the quantity supplied and demanded if the price increases to
$2.75?

b. Describe the change in consumer surplus at the higher price

c. Describe the change in producer surplus at the higher price

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d. Is the market for strawberries ​allocatively efficient​ at the price of $2.75? Explain.

e. Describe the impact on ​total welfare ​resulting from the market moving from
equilibrium to disequilibrium.

17. Assume the price of strawberries is $1.75

a. What will happen to the quantity supplied and demanded if the price increases to
$1.75?

b. Describe the change in consumer surplus at the lower price.

c. Describe the change in producer surplus at the lower price

d. Is the market for strawberries ​allocatively efficient​ at the price of $1.75? Explain.
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e. Describe the impact on ​total welfare ​resulting from the market moving from
equilibrium to disequilibrium.

Part 4 - Efficiency and Total Welfare

Definitions of “Efficiency” used in Economics:

● Allocative efficiency is achieved in a market when production takes place at a point
where the marginal benefits of consumers is equal to the marginal costs of producers.

18. Referring to consumer surplus and producer surplus, explain why at any price and
quantity combination ​other than​ Pe and Qe a market will be
a. Allocatively inefficient:

Part 5 - Graphical analysis 

Instructions: ​For each of the graphs provided, add the following items to the graph:
● Labels (D=MB, S=MC, axes, price and quantity)
● The area of Consumer Surplus (shade in one color)
● The area of Producer Surplus (shade in a different color)
● The area of Welfare Loss (if it exists, shade in a 3rd color)
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Beneath each graph, briefly explain explain whether the market is currently achieving maximum
efficiency, and why or why not.

1. Price is at equilibrium

Is the market efficient? Why or why not?

2. Price is above equilibrium

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Is the market efficient? Why or why not?

3. Quantity is greater than equilibrium

Is the market efficient? Why or why not?

4. Price is below equilibrium

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Is the market efficient? Why or why not?

5. Quantity is at equilibrium

Is the market efficient? Why or why not?

6. Quantity is below equilibrium

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Is the market efficient? Why or why not?

7. Demand has fallen but price remains at original equilibrium

Is the market efficient? Why or why not?

8. Supply has fallen decreased and price increases to a new equilibrium

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Is the market efficient? Why or why not?

9. Demand has increased but price remains at original equilibrium

Is the market efficient? Why or why not?

10. Supply has increased and price is at a new equilibrium

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Is the market efficient? Why or why not?