Consumer Surplus
o Extra value I get above what I am paying for
o Demand Curve = Willingness to Pay (WTP)
o Willingness to Pay – maximum amount the buyer is willing to pay
Measures how much the buyer values the good/service
o FORMULA = (Willingness to pay/Demand Curve) – (Price Paid for it)
o Graphically
o Below the Demand Curve (which is willingness to pay)
o Above the price line
o NOTE = consumer surplus ALWAYS deals with the demand curve

Producer Surplus
o FORMULA = (amount the seller is paid) – (sellers “marginal” cost)
o Closely related to profit, but producer surplus does not include fixed prices
o Measures the benefit to the sellers participating in a market
o Graphical analysis
o Height of the supply curve = cost
o Below price line,
o Above supply curve
o NOTE = Producer surplus is ALWAYS associated with the supply curve

Market Efficiency
o Combination of consumer surplus and producer surplus
o PS + CS = Total Surplus

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