7.2 Producer Surplus

7.2 a. Producer Surplus and Willingness to Sell

Producer surplus is the difference between the amount producers get for selling a good and the amount they want to accept for that good. ^[7]

Example: If the seller is looking to sell an item at $5 but a consumer is willing to pay $8, the producer surplus is $3.

^{Producer Surplus [8]}

7.2 b. Using the Supply Curve to Measure Producer Surplus

Producer surplus is the area above the producer’s supply curve that it receives at the price sold to the consumer. ^[7]

Example: Suppose the equilibrium price of a supply and demand curve is P which is also the price at which the producer sold the goods to the consumer. Then, the area between the supply curve, the line that goes through P parallel to x-axis and the y-axis is the producer surplus.

^{Producer Surplus [8]}

7.2 c. Impacts of Price Changes in Producer Surplus

Changes in the equilibrium price are directly related to producer surplus. As the equilibrium price increases, the potential producer surplus increases. As the equilibrium price decreases, producer surplus decreases. Also, supply and demand curves are also directly related to producer surplus. ^[7]

Example: Producer surplus is higher if the price floor is higher than the equilibrium price. ^[5]

^{Producer Surplus and Price Floors [6]}