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AP Economics Mr. Bernstein Module 49: Consumer and Producer Surplus October 23, 2014 AP Economics Mr. Bernstein Consumer Surplus • The difference between what a consumer is willing to pay for a good or service and what they actually have to pay 2 AP Economics Mr. Bernstein Willingness to Pay • Willingness to Pay is found along the demand curve • Purchases that can be made at lower prices create a net gain in happiness for the consumer; measured in dollars we call it Consumer Surplus 3 AP Economics Mr. Bernstein Calculating Consumer Surplus • The area below the demand curve or WTP line and above the price • Area = ½ base * height 4 AP Economics Mr. Bernstein Producer Surplus • The difference between what a producer must receive to sell a unit and the actual price they receive 5 AP Economics Mr. Bernstein Cost and Producer Surplus • Producer Cost is found along the supply curve • Producer Surplus is the difference between price and the cost of producing a unit 6 AP Economics Mr. Bernstein Calculating Producer Surplus • The area above the supply curve and below the price • Area = ½ base * height 7 AP Economics Mr. Bernstein Changes in Price Affect Consumer and Producer Surplus • If price decreases: • Consumer surplus increases(willingness to pay is the same, but the price paid is lower) • Producer surplus decreases (costs are the same but price received is lower) • If price increases: • Consumer surplus decreases (willingness to pay is the same but the price paid is higher) • Producer surplus increases (costs are the same but the price received is higher) 8 AP Economics Mr. Bernstein Total Surplus = Consumer Surplus + Producer Surplus 9