Consumer Surplus

Producer Surplus
Allocative Efficiency
Deadweight Loss
Excise Taxes
 Consumer Surplus: The difference between
what someone is willing to pay and what
they did pay
Producer Surplus: The difference between
what a producer is willing to sell a good or
service for and what they are actually sold
it for
Allocative Efficiency: When marginal
benefit is equal to marginal cost (AKA
equilibrium)
 In which two cases would a product not achieve
allocative efficiency?
When there is a price floor or ceiling,
deadweight loss is created
Deadweight Loss: The lost efficiency that occurs
when the market doesnt reach equilibrium (or
not making the amount that society actually
wants)
Anytime something is preventing the market
from the most efficient outcome, you will see
deadweight loss (taxes, monopolies, etc.)
 Excise Taxes: This is a tax on
producers.
Depending on the elasticity of the
product (demand curve) the will be
divided between the cost consumers
pay and the producer
The vertical distance between the
two supply curves tells you the
amount of the tax
The change in price tells how much
 Formulas!
Tax Revenue to Gov = Tax amount x
Quantity
Total Revenue to Producers =
Remaining revenue x quantity
Total Spending on Product = Price x
Quantity
 Questions!!
Tax per Unit?
Total Tax Revenue?
Amount Paid by consumers?
Amount Paid by producers?
Total spending?
Total revenue for producers?
 Applications!
Elasticity and shared tax cost
 Applications!
Elasticity and shared tax cost
Consumer Surplus, Producer Surplus,
and Deadweight loss