How To Calculate Consumer And Producer Surplus From Equations

Since the triangle corresponding to consumer surplus is a right triangle the equilibrium point intersects the price axis at a 900 angle and the area of that triangle is what you want to calculate you must know how to calculate the area of a right triangle. The equation for it is 12 base x height or base x height2. The somewhat triangular area labeled by f in the graph shows the area of consumer surplus which shows that the equilibrium price in the market was less than what many of the consumers were willing to pay.
how to calculate consumer and producer surplus from equations

Free trade means a reduction in tariffs.

How to calculate consumer and producer surplus from equations. 1 draw the supply and. Pmax price the buyer is willing to pay. Willingness to sell and the amount they actually end up receiving ie. Qd quantity demanded at equilibrium where demand and supply are equal.

Total surplus refers to the sum of consumer surplus and producer surplus. Consumer and producer surplus. Consumer surplus 30 10. Consumer surplus 150.

Firstly draw the demand curve and supply curve with quantity on the x axis and price on the y axis. The formula for calculating producer surplus is. Now let us take an example of consumer surplus with the demand function represented as q d 008x 80 and the supply function represented as q s 008x where x is the quantity demanded in kg. Producer surplus market price minimum price to sell quantity sold.

In this case the max price the consumer is willing to pay and the actual price the item is sold at. Pd price at equilibrium where demand and supply are equal. The first step is to look at the equation above and determine which variables need to be known before we can calculate the consumer surplus. Producer surplus describes the difference between the amount of money at which sellers are willing and able to sell a good or service ie.

Extended consumer surplus formula. Calculating producer surplus follows a 4 step process. Dp pmax pd. 12 base x height how free trade affects consumer and producer surplus.

On the other hand the formula for the producer surplus for the market as a whole can be derived by using the following steps. The area of the dotted triangle representing producer surplus is calculated as x base x height with the base of the triangle being the equilibrium quantity q e and the height being the equilibrium price p e. In the below given template is the data used for the calculation of the consumer surplus.