Median income for households in the United States rose to $52,762 in 2011 from $49,445 in 2010. (www.census.gov).
|Section 12: Consumer Surplus and Producer Surplus|
|Macroeconomics - Unit 2|
In the graph below, the supply and demand curves intersect at an equilibrium price of $5 and an equilibrium quantity of 120 products. If the price had been $6, buyers would have purchased 110 products. If the price had been $7, buyers would have purchased 100 products. If the price had been $8, buyers would have purchased 90 products, and so forth. This means that quite a few buyers would have been willing and able to pay more for the product than they are actually paying at the equilibrium price of $5. At the equilibrium price of $5 everyone pays that price, including the buyers who would have been willing to pay a higher price. The difference between how much consumers value a product and how much they actually pay for it at the equilibrium price is called consumer surplus. The consumer surplus in the graph below is illustrated by the shaded triangle.
Just like there is consumer surplus, there is producer surplus. Producer surplus is the difference between the minimum price at which producers would have been willing to produce the product and how much they are actually receiving at the equilibrium price. The producer surplus in the graph below is illustrated by the shaded triangle.
The total additional benefit to society of trading this product is the sum of consumer surplus and producer surplus. Can you figure out what happens to consumer surplus and producer surplus if both demand and supply increase (both curves shift to the right)?
|Last Updated on Monday, 24 December 2012 11:05|