1.2.8 Producer and Consumer Surplus
Specification:
a) The distinction between consumer and producer surplus
b) The use of supply and demand diagrams to illustrate consumer and producer surplus
c) How changes in supply and demand might affect consumer and producer surplus
Key Definitions:
Consumer surplus: The difference between what a consumer is willing to pay and what they
actually did pay for a good or service
This is a measure of Consumer Welfare
Producer surplus: The difference between the price at which a firm is willing to supply and
This is a measure of Producer Welfare
the price they actually received for the good or service
Effect of Price Elasticity of Demand
on Producer and Consumer Surplus:
Consumer
Surplus
Consumer
Surplus
Producer
Surplus
Producer
Surplus
Inward shift of Supply
Outward
shift of
Supply
Producer
surplus before
Consumer
surplus after
Consumer
surplus before
Outward
shift of
Demand
Producer
surplus after
INCREASES Producer and Consumer Surplus:


Outward Supply shift
Outward Demand shift
DECREASES Producer and Consumer Surplus:


Inward Supply shift
Inward Demand shift
Videos:
https://www.tutor2u.net/economics/reference/consumer-surplus
https://www.youtube.com/watch?v=0ENw4qM6Cqw
Exam question:

May 2015 (6EC01/01)- Question 3 (Page 6)