formula for cumsumer and prodeuser surplus

Because $50 is the maximum willingness to pay and 20 is your final equilibrium price.

At price = $20 quantity is 4000 units and hence, that is the base. Now, if Rachel sold 900 ornaments in a single year, then she earned: Rachel earned a manufacturer’s surplus of 12600.

Based on the given values, let us calculate producer surplus: Producer surplus Market price Producer’s Minimum Acceptable Price. So, Consumer Surplus = ½*100*(25 – 15 )=500įormula for Producer Surplus = ½ * base*height So now, the market price has risen to 18. So basically CS is the upper triangle and PS is the lower triangle.įormula for Consumer Surplus = ½ * base *height. Similarly, Consumer Surplus is the area below the demand curve and above the market price. Total Producer Surplus is the area above the Supply Curve and below the market price. Consumer surplus and producer surplus both can be calculated using the area of triangle formula. Gains of trade = Consumer Surplus +Producer Surplus. Similarly no producer will sell at a price which is lesser than his minimum willingness to sell price.

So if the market price is greater than his maximum bid there will be no transaction/trade. Using the integral formula for producer surplus, we nd that PS Z 200 0 10 2(2+0:0002x ) dx Z 200 0 8 0:0002x2 dx 8x 0:0002 3 x3 200 0 1 066:67: (c) Suppose that the price is set to 1 greater than the equilibrium price. No buyer will pay any price more than his maximum willingness to buy i.e. For each consumer their maximum willingness to pay for Sweetbrand cheesecakes are given in the table.Īs mentioned earlier Consumer surplus (CS) is the difference between buyer’s maximum willingness to buy and the market price. Definition of Consumer Surplus : Consumer surplus is the difference between the market price and the maximum price that the consumers are willing to pay for a particular product.ĭefinition of Producer Surplus : Producer Surplus is the difference between the market price and the minimum price that the sellers or producers are willing to sell for a product. supply curve is upward sloping, some of the revenue generated by a tariff is extracted from the producer surplus of foreign suppliers.

Formula for cumsumer and prodeuser surplus