Consumer and Producer Surplus in one diagram At the equilibrium, consumer surplus is RSP, producer surplus is QRS Price ‘Consumer and producer surplus are important concepts to use when discussing the effects of different government interventions in markets. Consumer ‘Changes in conditions of market supply and demand will bring about changes in the level of consumer and producer surplus (welfare)What is Consumer Surplus? Consumer surplus is a measure of the welfare that people gain from consuming goods and services * Consumer surplusisthe Price difference between the total, amount that consumers are willing and able to pay for a good or service (shown by the demand curve) and the total amount they actually do pay (ie. the market price). A * Consumer surplus is indicated by the area under the demand curve and above the market price. Demand at QuantityWhat is Producer Surplus? Producer surplus is a measure of producer welfare * Producer surplus is the difference between what producers are willing and able tosupplyagoodforandthe 8 price they actually receive * Producer surplus shown by area above the supply curve and below the market price * Higher prices provide an incentive to supply more to the market (profit motive) Price Supply