Consumer Surplus: Highest price consumers are willing to pay for a good minus the price actually paid
- Area below demand curve and above price line
Producer Surplus:**** Price received by firms for selling their good minus the lowest price that they are willing to accept to produce the good
- Area above supply curve and below price line
Consumer Surplus + Producer Surplus = Total Surplus
- Total surplus reflects society’s welfare
- One of the key concerns of economics: Maximise TS
- Allocative efficiency achieved when TS is maximised
Deadweight loss: Area between consumer and producer surplus, and market equilibrium
- Difference in production and consumption of any given product or service including government tax