AS Economics

AS Economics
Consumer & Producer Surplus

Dr. Sylvain Hours
11 postmaster@econdoctor.com
WeChat: sylvainhoursCN
www.econdoctor.com
Consumer Surplus
 The Consumer Surplus (CS) generated by the purchase of 1 unit of a
product is equal to the difference between the maximum price that the
buyer would have been willing and able to pay for that unit (i.e. the
maximum willingness to pay) and the price that is actually paid (i.e. the
market price).
CS = Max W2P – Market Price
 Remark: A buyer will effectively demand 1 unit of a product if its maximum

willingness to pay for that unit is greater than or equal to the market price.
Dr. Sylvain Hours

postmaster@econdoctor.com
www.econdoctor.com
Consumer Surplus
 Example: Patrick is willing and able to pay at most $4 for 1 beer whose unit
price is only $3 so Patrick enjoys a CS of $4 - $3 = $1 when purchasing 1
beer.
 The CS generated by the purchase of a given number of units of a product

is simply equal to the sum of the CS generated by the purchase of each of
these units.
 Example: Patrick, Kevin and Jacob are willing and able to pay at most $4,
$6 and $2 respectively for 1 beer whose unit price is $3. In that case, only 2
beers will be demanded, generating a CS of ($4 - $3) + ($6 - $3) = $4.
Dr. Sylvain Hours

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Consumer Surplus: an Example
 The table below indicates the maximum price that 6 potential buyers are
willing and able to pay for the purchase of 1 hour of music lessons per
week.
BUYER MAX W2P ($)

YOKO 10
ALBERT 8
SHIRLEY 14
KASELANDY 10
EMMA 6
ANA 18
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 The table below indicates the maximum price that 6 potential buyers are
willing and able to pay for the purchase of 1 hour of music lessons per
week.
BUYER MAX W2P ($)

ANA 18
SHIRLEY 14
KASELANDY 14
YOKO 10
ALBERT 8
EMMA 6
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 The information about the maximum willingness to pay of these 6 potential
buyers is used to build the demand schedule:
QUANTITY
PRICE ($)
DEMANDED
P > 18 0
14 < P < 18 1
10 < P < 14 2
8 < P < 10 4
6<P<8 5
P<8 6
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PRICE
($)
QUANTITY
Dr. Sylvain Hours
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PRICE
($)
ANA
18
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
0 1 2 3 4 5 6 Dr. Sylvain Hours
www.econdoctor.com
PRICE
($)
ANA
18
SHIRLEY
14
12
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
www.econdoctor.com
PRICE
($)
ANA
18
SHIRLEY
14
12
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
www.econdoctor.com
PRICE
($)
ANA CS = $6 + $2 = $8
18
SHIRLEY
14
12
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
www.econdoctor.com
PRICE
($)
ANA
18
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
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PRICE
($)
ANA
18
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
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PRICE
($)
ANA
18 CS = $10 + $6 + $2 + $2 + $0 = $20
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
QUANTITY
www.econdoctor.com
PRICE
($)
ANA
18
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
4
D
QUANTITY
www.econdoctor.com
PRICE
($)
ANA
18
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
4
D
QUANTITY
www.econdoctor.com
PRICE
($)
ANA CS = $14 + $10 + $6 + $6 + $4 + $2 = $42
18
SHIRLEY
14
KAS YOKO
10
ALBERT
8
EMMA
6
4
D
QUANTITY
www.econdoctor.com
Consumer Surplus
 The CS generated by the purchase of a product at a given price is equal to
the area that lies below the demand curve and above that price.
 If demand is linear (i.e. represented by a straight line), then
CS = (Demand Reservation Price – Market Price) x Quantity Demanded / 2
 The demand reservation price is the price above which the quantity
demanded is zero (i.e. the vertical intercept of the demand curve).
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Consumer Surplus
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Consumer Surplus
PRICE
($)
QUANTITY
Dr. Sylvain Hours
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Consumer Surplus
PRICE
($)
QUANTITY
Dr. Sylvain Hours
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Consumer Surplus
PRICE
($)
𝑝1
QUANTITY
𝑞 1 Dr. Sylvain Hours
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Consumer Surplus
PRICE
($)
CS1
𝑝1
QUANTITY
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Consumer Surplus & Increase in Price
Dr. Sylvain Hours

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PRICE
QUANTITY Dr. Sylvain Hours

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PRICE

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PRICE
𝑝1

𝑞
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PRICE
CS1
𝑝1

𝑞
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PRICE
𝑝2
𝑝1

𝑞 2 𝑞
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PRICE
CS2
𝑝2
𝑝1

𝑞 2 𝑞
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PRICE
𝑝2
∆ CS < 0
𝑝1

𝑞 2 𝑞
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PRICE
𝑝2
𝑝1
LOSS OF SURPLUS
FROM CONSUMERS D
WHO KEEP BUYING
THE PRODUCT AT
THE HIGHER PRICE

𝑞 2 𝑞
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PRICE
LOSS OF SURPLUS FROM

CONSUMERS WHO NO
LONGER BUY THE PRODUCT
𝑝2 AT THE HIGHER PRICE
𝑝1
LOSS OF SURPLUS
FROM CONSUMERS D
WHO KEEP BUYING
THE PRODUCT AT
THE HIGHER PRICE

𝑞 2 𝑞
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Consumer Surplus & Decrease in Price
Dr. Sylvain Hours

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PRICE

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PRICE

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PRICE
𝑝1

𝑞 1 postmaster@econdoctor.com
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PRICE
CS1
𝑝1

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PRICE
𝑝1
𝑝2

𝑞 1 𝑞
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PRICE
CS2
𝑝1
𝑝2

𝑞 1 𝑞
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PRICE
𝑝1
∆ CS > 0
𝑝2

𝑞 1 𝑞
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PRICE
𝑝1
𝑝2
GAIN IN SURPLUS FROM

CONSUMERS D
WHO ALREADY BOUGHT
THE PRODUCT AT THE
HIGHER PRICE
𝑞 1 𝑞
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PRICE

CONSUMERS WHO DID
NOT BUY THE PRODUCT
AT THE HIGHER PRICE
𝑝1
𝑝2

CONSUMERS D
WHO ALREADY BOUGHT
THE PRODUCT AT THE
HIGHER PRICE
𝑞 1 𝑞
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Producer Surplus
 The Producer Surplus (PS) generated by the sale of 1 unit of a product is
equal to the difference between the price actually received by the seller
(i.e. the market price) and the minimum price at which it would have
been willing and able to supply that unit (i.e. minimum willingness to
accept).
PS = Market Price – Min W2A
 Remark: A seller will effectively supply 1 unit of a product if the market

price is greater than or equal to its minimum willingness to accept.
Dr. Sylvain Hours

www.econdoctor.com
Producer Surplus
 Example: Lydia will accept to sell 1 bracelet given that she receives at least
$20. If the market price of bracelets is $25, then Lydia enjoys a PS of $25 -
$20 = $5 when selling 1 bracelet.
 The PS generated by the sale of a given number of units of a product is

simply equal to the sum of the PS generated by the sale of each of these
units.
 Example: Lydia, Vivian and Rosie will accept to sell 1 bracelet given that
they receive at least $20, $15 and $30 respectively. If the market price of
bracelets is $25, then only 2 bracelets will be supplied, generating a PS of
($25 - $20) + ($25 - $15) = $15.
Dr. Sylvain Hours

www.econdoctor.com
Producer Surplus: an Example
 The table below indicates the minimum price that 6 potential sellers are
willing and able to accept for the sale of 1 hour of music lessons per week.
SELLER MIN W2A ($)

CASTLE 12
ANTOINE 6
ANGELA 2
CHRISTINE 14
SAM 10
KENDRICK 12
Dr. Sylvain Hours

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 The table below indicates the minimum price that 6 potential sellers are
willing and able to accept for the sale of 1 hour of music lessons per week.
SELLER MIN W2A ($)

CHRISTINE 14
KENDRCK 12
CASTLE 12
SAM 10
ANTOINE 6
ANGELA 2
Dr. Sylvain Hours

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 The information about the minimum willingness to accept of these 6
potential sellers is used to build the supply schedule:
QUANTITY
PRICE ($)
SUPPLIED
P<2 0
2<P<6 1
6 < P < 10 2
10 < P < 12 3
12 < P < 14 5
P > 14 6
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Dr. Sylvain Hours

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PRICE
($)
QUANTITY
Dr. Sylvain Hours
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PRICE S
($)
CHRIST.
14
CASTLE KENDR.
12
SAM
10
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($) PS = $6 + $2 = $8
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
PS = $10 + $6 +$2 + $0 + $0 = $18
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
18
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
18
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE PS = $16 + $12 + $8 + $6 + $6 + $4 = $52 S
($)
18
CHRIST.
14
CASTLE KENDR.
12
SAM
10
8
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
Producer Surplus
 The PS generated by the sale of a product at a given price is equal to the
area that lies above the supply curve and below that price.
 If supply is linear (i.e. represented by a straight line) then:
PS = (Market Price – Supply Reservation Price) x Quantity Supplied / 2
 The supply reservation price is the price below which the quantity supplied
is zero (i.e. vertical intercept of the supply curve).
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Producer Surplus
Dr. Sylvain Hours

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Producer Surplus
PRICE
($)
QUANTITY
Dr. Sylvain Hours
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Producer Surplus
PRICE
($)
S
QUANTITY
Dr. Sylvain Hours
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Producer Surplus
PRICE
($)
S
𝑝1
QUANTITY
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Producer Surplus
PRICE
($)
S
𝑝1
PS1
QUANTITY
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Producer Surplus & Increase in Price
Dr. Sylvain Hours

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PRICE
Dr. Sylvain Hours

QUANTITY postmaster@econdoctor.com
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PRICE
Dr. Sylvain Hours

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PRICE
𝑝1
Dr. Sylvain Hours

𝑞
1 WeChat: sylvainhoursCN
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PRICE
𝑝1
PS1
Dr. Sylvain Hours

𝑞
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PRICE
𝑝2
𝑝1
Dr. Sylvain Hours

𝑞
1 𝑞 2 WeChat: sylvainhoursCN
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PRICE
𝑝2
𝑝1
PS2
Dr. Sylvain Hours

𝑞
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PRICE
𝑝2
∆ PS > 0
𝑝1
Dr. Sylvain Hours

𝑞
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PRICE GAIN IN SURPLUS FROM
PRODUCERS WHO ALREADY
SUPPLIED THE PRODUCT
AT THE LOWER PRICE S
𝑝2
𝑝1
Dr. Sylvain Hours

𝑞
www.econdoctor.com
PRICE GAIN IN SURPLUS FROM
PRODUCERS WHO ALREADY
SUPPLIED THE PRODUCT
𝑝2
GAIN IN SURPLUS
𝑝1 FROM PRODUCERS
WHO DID NOT SUPPLY
THE PRODUCT AT THE
LOWER PRICE
Dr. Sylvain Hours

𝑞
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Producer Surplus & Decrease in Price
Dr. Sylvain Hours

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PRICE
Dr. Sylvain Hours

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PRICE
Dr. Sylvain Hours

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PRICE
𝑝1
Dr. Sylvain Hours

𝑞
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PRICE
𝑝1
PS1
Dr. Sylvain Hours

𝑞
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PRICE
𝑝1
𝑝2
Dr. Sylvain Hours

𝑞 2 𝑞
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PRICE
𝑝1
𝑝2
Dr. Sylvain Hours

𝑞 2 𝑞
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PRICE
𝑝1
𝑝2
PS2
Dr. Sylvain Hours

𝑞 2 𝑞
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PRICE
𝑝1
∆ PS < 0
𝑝2
Dr. Sylvain Hours

𝑞 2 𝑞
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PRICE LOSS IN SURPLUS FROM
PRODUCERS WHO KEEP
SUPPLYING THE PRODUCT
𝑝1
𝑝2
Dr. Sylvain Hours

𝑞 2 𝑞
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PRICE LOSS IN SURPLUS FROM
PRODUCERS WHO KEEP
SUPPLYING THE PRODUCT
𝑝1
LOSS IN SURPLUS
𝑝2 FROM PRODUCERS
WHO NO LONGER
SUPPLY THE PRODUCT
AT THE LOWER PRICE
Dr. Sylvain Hours

𝑞 2 𝑞
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Consumer & Producer Surplus: an Example
Dr. Sylvain Hours

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PRICE
($)
QUANTITY
Dr. Sylvain Hours
www.econdoctor.com
PRICE S
($)
CHRIST.
14
CASTLE KENDR.
12
10
SAM
ANTOINE
6
ANGELA
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA
18
SHIRLEY CHRIST.
14
CASTLE KENDR.
12
KAS
10
SAM YOKO ALBERT
8
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA
18
SHIRLEY CHRIST.
14
CASTLE KENDR.
12
KAS
10
SAM YOKO ALBERT
8
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA
18
SHIRLEY CHRIST.
14
CASTLE KENDR.
12
KAS
10
SAM YOKO ALBERT
8
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA CS = $8 + $4 + $0 = $12
18
SHIRLEY CHRIST.
14
CASTLE KENDR.
12
KAS
10
SAM YOKO ALBERT
8
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA CS = $8 + $4 + $0 = $12
18
SHIRLEY CHRIST.
14
CASTLE KENDR.
12
KAS
10
SAM YOKO ALBERT
8
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA CS = $8 + $4 + $0 = $12
18
SHIRLEY CHRIST.
14
CASTLE KENDR. PS = $8 + $4 + $0 = $12
12
KAS
10
SAM YOKO ALBERT
8
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
PRICE S
($)
ANA CS = $8 + $4 + $0 = $12
18
SHIRLEY CHRIST.
+
14
CASTLE KENDR. PS = $8 + $4 + $0 = $12
12
KAS
10 =
SAM YOKO ALBERT
8 TS = $12 + $12 = $24
ANTOINE EMMA
6
ANGELA D
2
QUANTITY
www.econdoctor.com
Total Surplus ONE STEP
FURTHER
 Total Surplus (TS) is usually defined as the sum of CS and PS.
TS = CS + PS
 Therefore, the TS generated when trading 1 unit of a product is equal to

the difference between the buyer’s maximum willingness to pay and the
seller’s minimum willingness to accept.
TS = Max W2P – Min W2A
 Simply put, TS measures the gains from trade (i.e. the net benefit generated
by the production and consumption of a good or service).
Dr. Sylvain Hours
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FURTHER
 Example: If Jason is willing and able to pay at most $100 for 1 headset (i.e.
max w2p) and if Lucy accepts to sell 1 headset given that she receives at least
$60 (i.e. min w2a), then trading 1 headset at any price between $60 and
$100 generates a TS of $100 - $60 = $40.
 The TS generated when trading a given number of units of a product is

simply equal to the sum of the TS generated when trading each of these
units.
 The TS generated by a market in equilibrium is equal to the area that lies

below the demand curve and above the supply curve.
 If both demand and supply are linear (i.e. represented by straight lines),
then:
TS = (Demand Res. Price – Supply Res. Price) x Equilibrium Quantity / Dr. Sylvain Hours
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PRICE

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PRICE
S

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PRICE
S

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PRICE
S
E
∗
𝑝

∗
𝑞
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PRICE
𝑝0 S
E
∗
𝑝

𝑞
0 𝑞
∗ postmaster@econdoctor.com
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PRICE
S
𝑝1
E
∗
𝑝

𝑞
1 𝑞
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PRICE
S
𝑝2
E
∗
𝑝

𝑞 2 𝑞
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PRICE
S
𝑝3
E
∗
𝑝

𝑞 3 𝑞
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PRICE
S
𝑝4
E
∗
𝑝

𝑞
4 𝑞
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PRICE
S
E
∗
𝑝

∗
𝑞
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S
CS
E
∗
𝑝

∗
𝑞
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PRICE
S
CS
E
∗
𝑝
𝑝0
𝑞
0 𝑞
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PRICE
S
CS
E
∗
𝑝
D
𝑝1

𝑞
1 𝑞
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PRICE
S
CS
E
∗
𝑝
𝑝2
D

𝑞 2 𝑞
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PRICE
S
CS
E
∗
𝑝
𝑝3

𝑞 3 𝑞
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PRICE
S
CS
E
∗
𝑝
𝑝4

𝑞
4 𝑞
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PRICE
S
CS
E
∗
𝑝

∗
𝑞
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PRICE
S
CS
E
∗
𝑝
PS

∗
𝑞
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FURTHER
PRICE
S
E
∗
𝑝
TS

∗
𝑞
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CS & PS: Increase in Demand
Dr. Sylvain Hours

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PRICE

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PRICE

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D1

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E1
𝑝1
D1

𝑞
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PRICE
E1
𝑝1
D1 D2

𝑞
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PRICE
E2
𝑝2
E1
𝑝1
D1 D2

𝑞
1 𝑞
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PRICE
E2
𝑝2
CS1 E1
𝑝1
D1 D2

𝑞
1 𝑞
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PRICE
S
CS2
E2
𝑝2
CS1 E1
𝑝1
D1 D2

𝑞
1 𝑞
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PRICE
S
CS2
E2 ∆CS > 0
𝑝2
CS1 E1
𝑝1
D1 D2

𝑞
1 𝑞
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PRICE
E2
𝑝2
E1
𝑝1
PS1
D1 D2

𝑞
1 𝑞
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PRICE
E2
𝑝2
PS2 E1
𝑝1
PS1
D1 D2

𝑞
1 𝑞
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PRICE
E2 ∆PS > 0
𝑝2
PS2 E1
𝑝1
PS1
D1 D2

𝑞
1 𝑞
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CS & PS: Decrease in Demand
Dr. Sylvain Hours

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PRICE

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PRICE

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PRICE
D1

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PRICE
E1
𝑝1
D1

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PRICE
E1
𝑝1
D2 D1

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PRICE
E1
𝑝1
E2
𝑝2
D2 D1

𝑞 2 𝑞 1 postmaster@econdoctor.com
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PRICE
S
CS1
E1
𝑝1
E2
𝑝2
D2 D1

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PRICE
S
CS1
E1
𝑝1
CS2 E2
𝑝2
D2 D1

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PRICE
S
CS1
E1 ∆CS < 0
𝑝1
CS2 E2
𝑝2
D2 D1

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PRICE
E1
𝑝1
PS1 E2
𝑝2
D2 D1

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PRICE
E1
𝑝1
PS1 E2
𝑝2
PS2
D2 D1

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PRICE
E1 ∆PS < 0
𝑝1
PS1 E2
𝑝2
PS2
D2 D1

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CS & PS: Increase in Supply
Dr. Sylvain Hours

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PRICE
QUANTITY
Dr. Sylvain Hours
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PRICE
S1
QUANTITY
Dr. Sylvain Hours
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PRICE
S1
QUANTITY
Dr. Sylvain Hours
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PRICE
S1
E1
𝑝1
QUANTITY
𝑞
1 Dr. Sylvain Hours
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PRICE
S1 S2
E1
𝑝1
QUANTITY
𝑞
1 Dr. Sylvain Hours
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PRICE
S1 S2
E1
𝑝1
E2
𝑝2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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PRICE
S1 S2
CS1 E1
𝑝1
E2
𝑝2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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PRICE
S1 S2
CS1 E1
𝑝1
CS2 E2
𝑝2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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PRICE
S1 S2
CS1 E1
𝑝1
CS2 E2 ∆CS > 0
𝑝2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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PRICE
S1 S2
E1
𝑝1
PS1 E2
𝑝2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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PRICE
S1 S2
E1
𝑝1
PS1 E2
𝑝2
PS2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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PRICE
S1 S2
E1
𝑝1
∆PS > 0
PS1 E2
𝑝2
PS2
QUANTITY
𝑞
1 𝑞
2 Dr. Sylvain Hours
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CS & PS: Decrease in Supply
Dr. Sylvain Hours

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PRICE
QUANTITY
Dr. Sylvain Hours
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PRICE
S1
QUANTITY
Dr. Sylvain Hours
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PRICE
S1
QUANTITY
Dr. Sylvain Hours
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PRICE
S1
E1
𝑝1
QUANTITY
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PRICE
S2 S1
E1
𝑝1
QUANTITY
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PRICE
S2 S1
E2
𝑝2
E1
𝑝1
QUANTITY
𝑞 2 𝑞 1 Dr. Sylvain Hours
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PRICE
S2 S1
E2
𝑝2
CS1 E1
𝑝1
QUANTITY
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PRICE
S2 S1
CS2 E2
𝑝2
CS1 E1
𝑝1
QUANTITY
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PRICE
S2 S1
CS2 E2
𝑝2
CS1 E1 ∆CS < 0
𝑝1
QUANTITY
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PRICE
S2 S1
E2
𝑝2
E1
𝑝1
PS1
QUANTITY
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PRICE
S2 S1
E2
𝑝2
PS2 E1
𝑝1
PS1
QUANTITY
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PRICE
S2 S1
E2
𝑝2
∆PS < 0
PS2 E1
𝑝1
PS1
QUANTITY
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Practice Time! ONE STEP
FURTHER

The demand for Vespas is given by P = 120 – 4Q. The supply of Vespas is
given by P = 40 + 6Q. Compute the market equilibrium (i.e. the equilibrium
price and the equilibrium quantity) as well as the CS, the PS and the TS.
Represent graphically.
 Answer:
 Market equilibrium:
120 – 4Q = 40 + 6Q Q* = 8
P* = 88
 Consumer Surplus:
CS = (120 - 88) x 8 x ½ = 128
 Producer Surplus:
PS = (88 – 40) x 8 x ½ = 192
Dr. Sylvain Hours
 Total Surplus: postmaster@econdoctor.com
TS = CS + PS = 128 + 192 = 320 www.econdoctor.com
FURTHER
Dr. Sylvain Hours

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FURTHER
PRICE
OF VESPAS

OF VESPAS postmaster@econdoctor.com
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FURTHER
PRICE
OF VESPAS
40

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FURTHER
PRICE
OF VESPAS
120
S
40

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FURTHER
PRICE
OF VESPAS
120
S
E
88
40

8 OF VESPAS postmaster@econdoctor.com
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FURTHER
PRICE
OF VESPAS
120
S
CS = 128 E
88
40

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FURTHER
PRICE
OF VESPAS
120
S
CS = 128 E
88
PS = 192
40

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FURTHER
PRICE
OF VESPAS
120
S
E
88
TS = 320
40

www.econdoctor.com

AS Economics - 11 - The Price System and The Micro Economy (Consumer & Producer Surplus)

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Consumer & Producer Surplus

CS = Max W2P – Market Price

 Remark: A buyer will effectively demand 1 unit of a product if its maximum

Dr. Sylvain Hours

 The CS generated by the purchase of a given number of units of a product

Dr. Sylvain Hours

BUYER MAX W2P ($)

Dr. Sylvain Hours

BUYER MAX W2P ($)

Dr. Sylvain Hours

Dr. Sylvain Hours

Dr. Sylvain Hours

 If demand is linear (i.e. represented by a straight line), then

CS = (Demand Reservation Price – Market Price) x Quantity Demanded / 2

Dr. Sylvain Hours

Dr. Sylvain Hours

Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

LOSS OF SURPLUS FROM

QUANTITY Dr. Sylvain Hours

Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

QUANTITY Dr. Sylvain Hours

GAIN IN SURPLUS FROM

GAIN IN SURPLUS FROM

GAIN IN SURPLUS FROM

PS = Market Price – Min W2A

 Remark: A seller will effectively supply 1 unit of a product if the market

Dr. Sylvain Hours

 The PS generated by the sale of a given number of units of a product is

Dr. Sylvain Hours

SELLER MIN W2A ($)

Dr. Sylvain Hours

SELLER MIN W2A ($)

Dr. Sylvain Hours

Dr. Sylvain Hours

Dr. Sylvain Hours

 If supply is linear (i.e. represented by a straight line) then:

PS = (Market Price – Supply Reservation Price) x Quantity Supplied / 2

Dr. Sylvain Hours

Dr. Sylvain Hours

Dr. Sylvain Hours

Dr. Sylvain Hours

Dr. Sylvain Hours