How to Find Consumer & Producer Surplus
Economics is the study of the collection, allocation and distribution of goods or services in an economy. One part of economic study focuses on the surplus of consumers and producers. Consumer surplus represents the difference between the price paid for a good and the price at which a supplier attempts to sell those goods. Producer surplus is the opposite of consumer surplus, meaning a company receives more money than its minimum sales price. Calculating this surplus commonly involves the use of a supply and demand graph.
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Instructions
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Create a right-angle supply and demand chart. On the vertical axis, list the prices for goods or services. The horizontal axis will represent quantity of goods and services.
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Draw a demand curve from the top left of the graph to the bottom right. Along this line, create marks for each price point listed on the horizontal axis.
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3
Calculate consumer surplus. Assume consumers paid $40 for a widget, although they were willing to pay more. The portion of the supply and demand chart above the $40 price point to the top of the demand curve represents the consumer surplus.
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Draw a supply curve from the bottom left of the graph to the top right. Along this line, create marks for each price point on the supply curve.
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Calculate producer surplus. If a company receives $40 for a widget but was willing to accept a lower price, the portion of the supply and demand chart for $40 to the bottom portion of the supply curve represents the producer surplus for the item.
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Tips & Warnings
Business owners and managers can create multiple supply and demand charts to calculate both consumer and producer surplus. This allows the company to use different product prices to determine the amount of surplus from these figures.
Like many economic calculations, supply and demand charts only represent estimates or expectations from past financial figures. These figures may present skewed information if inaccurate.
References
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