A student asks …
How do we calculate consumers surplus and producer surplus from a graph and from a data table?
What is consumer surplus?
When you buy something for less than it is worth to you, you receive consumer surplus. Consumer surplus is the excess of the benefit received from a good or service over the amount paid for it.
What is producer surplus?
When a firm sells a good or service at a price greater than the good’s marginal cost, the firm receives producer surplus. Producer surplus is the excess of the amount received from the sale of a good or service over the cost of producing it.
How do we calculate consumer surplus and producer surplus?
We calculate consumer surplus as the marginal benefit of a good minus its price, summed over the quantity bought. And we calculate producer surplus as the price received minus the marginal cost, summed over the quantity sold.
How do we calculate consumer surplus and producer surplus from a graph?
Two steps are required to calculate consumer surplus and producer surplus from a graph. First, identify the area on the graph that represents the surplus. Second, calculate the size of the area.
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How do we calculate consumer surplus and producer surplus from a data table?
A demand schedule gives the marginal benefit of buying a good or service, and a supply schedule gives the marginal cost of selling it. In either case, we calculate the relevant surplus using the steps given above and summing across the quantity traded.
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If I’m given a table on a test, should I use a graph anyway?
I am a TA for Principles of Economics and I have worked with hundreds of students. After years of watching the mistakes students commonly make, I recommend graphing the demand and supply curves and calculating the surpluses from your graph.
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