Question

Consider the accompanying supply and demand graph. What is the value of consumer surplus? $ Enter numeric value Supply Price ($) What is the value of producer surplus? (5, 4.5) Demand What is the value of total (also called social or economic) surplus? 0 1 2 3 4 5 Quantity 6 §

Answer 1

• Let us look at the given graph. We see that the consumers are willing to pay the price as high as $9 per unit but they pay only $4.5 per unit and the units consumed are 5. In the graph, consumer surplus is the triangular area formed by the demand curve, the imaginary straight line at the equilibrium price of 4.5 and the y axis. This forms a right angle triangle with perpendicular equalling 9-4.5 = 4.5 and base equalling 5 so the area is 1/2 x 4.5 x 5 = 11.25
• Let us look at the given graph. We see that the suppliers are willing to supply at the price as low as $1 per unit but they get $4.5 per unit and the units sold are 5. In the graph, producer surplus is the triangular area formed by the supply curve, the imaginary straight line at the equilibrium price of 4.5 and the y axis. This forms a right angle triangle with perpendicular equalling 4.5-1 = 3.5 and base equalling 5 so the area is 1/2 x 3.5 x 5 = 8.75
• Total surplus = consumer surplus + producer surplus
  • Total surplus = 11.25+8.75 = 20