Consumer and Producer Surplus

Benefit that goes to different economic agents as a result of buying and selling goods in the market.

Consumer surplus

The sum of all the extra benefit consumers in a market get from buying and consuming a good or service.

The difference between the price consumers are willing to pay and the price they actually pay.

Producer Surplus

The sum of the extra money earned above the cost of production.

The difference between the price producers are willing to supply at and the price they actually supply at.

Consumer + producer surplus is the total benefit to society.

If the market is not at the market clearing equilibrium, there is a deadweight loss because there is an extra possible benefit to society which is not being generated due to over or under production.

Authored by Priscilla Chau.