Consumer and Producer Surplus

Transcript:

1 What exactly is consumer surplus?
2 Suppose I want a computer
3 because it gives me a happiness of $700.
4 I go to the market and realize I can buy it at just $500.
5.
6 Woohoo! $200 of net happiness.
This is my consumer surplus.

7 On the demand curve,
8 Though everyone pays the same price at $500,
9 different consumers have different willingness to pay.
10 I’m willing to get the computer at $700.
11 It costs only $500.
12 My surplus is $200.

16 Then another guy is willing to pay $600.
17
18 His surplus is lower, at $100.
19 And of course you have a guy who’s only willing to pay $500.
20
21 His surplus is $0.
22 What about a guy who’s willing to pay $400?
23
24 The computer costs $500!
No transaction will take place.
25 Add up all these surpluses, this is the total consumer surplus in the market.

26 What about producer surplus?
27 Suppose I produce computers.
28 I want to sell each of these at $300.
29 I go to the market and realize that everyone else is selling these at $500.
30 Happily, I price my computer at $500.
Which is cool!
31 I’m expecting $300 but I get $500.
32 That’s $200 extra.

33 On the supply curve,
Though everyone sells at the equilibrium price of $500,
34 different producers have different willingness to sell.
35 I hope to sell my computer for at least $300.
36 Sold it at $500.
37 My producer surplus is $200.
38 Another guy wants to sell his computer at $400.
39
40 His surplus will be lower at $100.
41 For a guy who’s wants to sell his computer at $500,
42
43 His producer surplus is $0.
Add up all the producer surplus,
44 And you get a triangle area.

45 Add up these 2 triangles,
We have the total surplus
46 Also known as the social welfare.

47 All of us know that this is the market equilibrium point.
48 Do you know this is also the allocatively efficient point?
Huh?
49 Check out the next video on Allocative Efficiency.
50 If you like this video, remember to like and subscribe.

_____________________________________________________

What happens if the equilibrium price is lower than what you, as a consumer, is willing to pay? Do you gain extra happiness? Yeah! Remember? The demand curve is also the marginal benefit. So when price is lower than your marginal benefit, you get 'extra benefit' due to the lower price you have to pay.

Different consumers have different willingness to pay. So the lower their willingness to pay, the lower their consumer surplus. For consumers whose willingness and ability to pay are lower than the prevailing market equilibrium price, no transaction will take place.

Add up all the individual consumer surplus to get the total consumer surplus.

Producers also have different willingness to sell for a very simple reason--the cost of production for different producers is different. Hence, some producers can sell at a lower price while other can't. Remember? The supply curve is also the marginal cost curve. So if the price of the good is higher than the producer's marginal cost, there's a surplus, also known as the producer surplus.

Add up the consumer surplus and consumer surplus, you get the total surplus, which is also known as the social welfare.

[gloriakluth]

Spent over an hour reading a dry textbook, banging my head over this concept, when this video explained it perfectly in three minutes.

[majorscipioafricanus]

your video could of replaced my 3 hour lecture and it taught me more as well

[Isyrawr]

*reads textbook

Dahek is this producer surplus i dont even-



*watches this video

Wow! How can i be so stupid


Thanks for the smooth explanation. Its so easy to understand!!! THANK YOU

[MrMidwest]

yeah, by far best quick explanation I've seen, thanks

[hanvour]

Oh dear, this video suddenly brought my knowledge of economics back to earth.

[ragas]

Amazing. Your hard work and fantastic explanation have earned you a sub! Thanks for the amazing work .

[Khanal]

Love the graphics to explain the concepts, makes it great!

[belsvlog]

Thankyousomuch for uploading this video it helps me a lot. It's easy to understand.😊

[moosaiqbal]

You have cleared all my doubts related to surplus...thanks a lot !!!

[angelhill]

This video explained what I couldn't understand for months :D thank you!

[jasonlee]

This video helps me a lots.thanks for teaching.

[sarahrosin]

THIS IS AMAZING IT MADE SO MUCH SENSE SO QUICKLY!!!

[qmnozny]

Thank you for conducting such a quality lesson.

[Keezie]

Very good video. You made this concept easy to understand!

[aleantan]

Thanks to this i'll definitely pass midterms >:3

[dequinamichelleannm]

THANKYOU FOR THIS VIDS. VERY HELPFUUUUL

[mofibio]

thank you for this video. easy to understand

[SreenivasKaranamPraveen]

you shud be my economics prof.. Great job!

[andreievseev]

I think there is something important missing in this video. Let's focus on the graph at 1:20. It is assumed that for every additional computer there is one additional buyer. But what if I want to buy both the first and the second computer?

The graph says that the maximum price at which I want to buy two computers is $600. So in total I am ready to pay $1200 for two computers, but as the price is $500, I pay only $1000. As I am the only consumer who has surplus, the total surplus will be $1200 - $1000 = $200, in comparison with $300 for a situation where each of buyers only buys one computer.

Thus, we cannot longer assume that the total surplus is the sum of price differences or the area under the curve.

[AmberlitArt]

This is such a cute video and easy to understand. Loved it!