Demand and SupplyConsumer and Producer Surplus

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Demand and Supply-Consumer and Producer Surplus
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Consumer Surplus

• The value of one more unit of a good or service
  is
• marginal benefit. Marginal benefit is the
  maximum price that people are willing to pay for
  another unit of a good or service.
• It is useful to consider the demand curve as a
  willingness-to-pay curve.
• The negative slope of the demand curve can also
  be explained by the declining marginal benefit.
  The more you already have of a good, the less
  valuable an additional unit of that good is to
  you. In other words, the maximum price you are
  willing to pay for another unit of that good
  declines as the quantity you have increases.

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Consumer Surplus
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Consumer Surplus
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Consumer Surplus

• In the market, product is sold at the market
  equilibrium price, which is determined by the
  demand curve and supply curve.
• At the equilibrium price and quantity, all units
  are sold for the same price regardless of how
  much the individual customer values the product.
• For a The difference between the value(benefit)
  received and the price paid(cost) is consumer
  surplus.
• CSTV-TE

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Consumer Surplus
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Consumer Surplus
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Producer Surplus

• The cost of producing one more unit of a good or
  service is marginal cost. Marginal cost is the
  minimum price that producers must receive to
  induce them to produce another unit of the good
  or service. The minimum acceptable price
  determines the quantity supplied.
• It is useful to consider the supply curve as a
  need-to-be-paid curve.

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Producer Surplus
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Producer Surplus
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Producer Surplus

• The difference between the price received and the
  amount of money required by producers to offer
  the product (marginal cost)on the market is
  producer surplus.
• PSTR-TVC

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Producer Surplus
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Consumer Surplus Producer Surplus

• A perfectly competitive market creates an
  efficient allocation of resources at equilibrium.
  In equilibrium, the quantity demanded equals the
  quantity supplied.
• At the equilibrium quantity, marginal benefit
  equals marginal cost, so the quantity is the
  efficient quantity.
• In a perfectly competitive market, the market
  equilibrium maximizes combined producer and
  consumer surplus.

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Consumer Surplus Producer Surplus
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Consumer Surplus Producer Surplus

• Underproduction and Overproduction
• Inefficiency can occur because too little of an
  item is producedunderproductionor too much of
  an item is producedoverproduction.
• In either case, a deadweight loss occurs. A
  deadweight loss is the decrease in the consumer
  surplus and producer surplus (decrease in total
  surplus) that results from producing an
  inefficient level of production.

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Consumer Surplus Producer Surplus
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Consumer Surplus Producer Surplus

• Obstacles to Efficiency in competitive markets,
• underproduction or overproduction arise when
  there are
• Price and quantity regulations
• Taxes and subsidies
• Externalities
• Public goods and common resources
• Monopoly
• High transactions costs