Download How to Calculate Consumer and Producer Surplus from a Graph:

How to Calculate Consumer and Producer Surplus from a Graph:
No government intervention:
As discussed in the text, consumer surplus is the area below the demand curve and above price.
If there are no government interventions, this area will be a triangle. Consumer surplus can be
calculated numerically by simply calculating the area of that triangle. Let’s consider an example
from the text on page 158.
In this example equilibrium price and quantity are both 5, so we have a triangle of height 5 and
base 5 as you can see in the diagram below (shaded green). Remembering that the area of a
triangle is ½ base times height, we multiply 5 times 5 and divide by 2 giving us 12.5 as the
consumer surplus.
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Producer surplus is the area above the supply curve and below equilibrium price. Again, if there
are no government interventions, this area will be a triangle. We’ve shaded it pink in the above
figure. Again, use the formula for the area of a triangle is ½ base times height so producer
surplus is ½ X 5 X 5 = 12.5.
Price ceilings and price floors:
With price ceilings and price floors, it’s a little trickier, but not much. In these cases there will be
consumer surplus, producer surplus, and deadweight loss. With a price ceiling some of the
producer surplus is transferred to consumer surplus; with a price floor some of the consumer
surplus is transferred to producer surplus. The efficiency cost of doing that transfer is the
deadweight loss. Let’s go through an example of a price floor.
1. Consumer surplus is the area above the price floor and below the demand curve up to the
quantity purchased. In our example, consumers purchase 4 units with a price floor of $6.
Consumer surplus is the green triangle in the figure below. Its height is the price at which
demand curve intersects the price axis less the price floor. Its base is the quantity
purchased. So, consumer surplus is ½ base times height, or ½ (4 X 4) = 8.
2. Producer surplus is just a little more complicated. It is the area below price ($6) up to
quantity purchased (4) and above the supply curve. To calculate this area, divide it into
two areas – a rectangle and a triangle. Producer surplus is the sum of these two areas.

(a) The area of the rectangle is base times height. Its base is the quantity
purchased at the price floor (4). Its height is the difference between producer and
consumer surplus at the quantity purchased. Visually you can find the height by
dropping a vertical line from the demand curve at quantity purchased to the
supply curve. The price floor less the price at which this line intersects the supply
curve is the height of the rectangle (2). So, the area of this rectangle is 2 X 4 = 8.

(b) The remaining part of producer surplus is a triangle bounded by the horizontal
line drawn from the price found in the previous step to the price axis and the
supply curve. It’s the light pink triangle below. Its base is the quantity purchased
at the price floor (4) and its height is the difference between the price where the
quantity purchased intersects the supply curve and the price where the supply
curve intersects the price axis (4). The area of the triangle is ½ base X height, or
½ (4 X 4) = 8 Add these two areas (a) and (b) to find total producer surplus (8 + 8
= 16). (If we had done a price ceiling of $4, the rectangle would have gone to the
consumer rather than the producer.)
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3. Deadweight loss. Deadweight loss is the loss of consumer and producer surplus from the
government intervention. You can calculate it in two ways. One way is to subtract the
total consumer and producer surplus with the price floor (8 + 16) from the consumer and
producer surplus without government intervention (12.5 + 12.5). This would equal 25 –
24 = 1. A second way is to calculate the area of the triangle that represents deadweight
loss (it’s the gray triangle in the example above). The base is the vertical distance
between the supply and demand curves at the quantity purchased (2) and its height is the
difference between quantity with and without the price floor (1). Therefore deadweight
loss is ½ (2 X 1) = 1.