Alright. So now let's extend that idea of producer surplus to the entire market. So like we see here in the green box, we've got the area below the market price, right, and above the supply curve. That's going to be our producer surplus just like we kind of saw in the examples in the small market. We're going to see it going on here. So let's start with this original producer surplus before we change the price. So we've got our price axis here, our quantity axis, and say that there's this price on the market, right, whatever the market price is and we're going to supply this quantity at that price. Right? And notice that now we've got our smooth supply curve. It's no longer that jagged curve that we saw before and this is because there are a lot of suppliers now. Right? Before we had, you know, Homer supplying at $2, Mark at $4. Well, now there are suppliers that will supply at $3 at $3.5 right? All the willingness to sell, of all these multitude of suppliers now and that's going to smooth out our curve and give us this straight line, and we got that upward supply, right? We had that downward demand, supply is the other one that goes upwards. Cool. So at this price p, what is our producer surplus? Well, it's going to be that area below the market price and above the supply curve. So I'm going to highlight it here in this purple. Right? And you see that we get a triangle again. Right? We've got this triangle, and we could, right, theoretically get the area of this triangle if we had the right information, right, we'd need some information about what that quantity is, we'd have our base and our height, right, And we could figure out what that producer surplus is. We might need this number right here too. What's that minimum supply? Well anyways, let's go ahead and see what happens when we decrease the price, right? So when you decrease the price, what would you expect to happen to producer surplus? Would you expect producer surplus to increase or decrease? Well, the idea is that it's going to decrease, right? It's going to decrease because fewer people are willing to sell at a lower price. It goes back to that law of supply, lower price, fewer people supplying, less quantity supplied. So let's go ahead and see what happens here to our producer surplus. So right, we had that original price, P, but let's say we were at this low price. We'll say PL again. PLow. L for low. Right? So our original surplus for the producers was this whole purple area just like we had on the other side, right? That whole triangle, I'm going to get rid of it and let's go ahead and highlight our new producer surplus in purple, right. So we expected it to decrease, we've got this low price of PL and it's going to be everything below the market price and above the supply curve. So we're going to get this little baby area right there is going to be our remaining producer surplus after the price decrease. So what happened to our Producer Surplus? Where did it go? Well first we're going to see that producers that are still selling, right, they're still selling at this lower price because the lower price is still above their willingness to sell or equal to their willingness to sell, they're still going to sell but they're going to lose surplus because the price dropped and that's represented by this green area right here. That green rectangle represents the surplus lost to the suppliers that are still in the market. Right? And just like with consumer surplus, the price change is going to drop these producers out of the market. Right? So this blue triangle represents suppliers that were selling at the higher price, but now that the price has decreased, their willingness to sell is above that price and they are no longer going to sell, right? So we lose that producer surplus from those people that exited the market, right? So when they ask us questions, right, we could calculate the area. They could ask us to calculate the original producer surplus, right, and that's the entire area. That was the original surplus before the price change, but now we've got our new surplus, right? What is the remaining producer surplus? They could ask you to calculate that triangle right there. They could ask you, hey, what is the surplus lost by the people still selling? And that's going to be this rectangle, right? Or they could say what is the surplus lost because people left the market? And that's the producer surplus that we lost is the blue area because people left the market. Right? So if we had the right data, numbers for prices, numbers for quantities, we'd be able to calculate these areas and find out what these different parts of producer surplus are. So remember it's going to be the area below the market price and above the supply curve. Alright, we've still got just like before right the happiness and benefits. So let's go ahead and do some examples, some practice, and let's get this producer surplus stuff down pat. Alright. Let's do that in the next video.
Table of contents
- 1. Introduction to Macroeconomics1h 57m
- 2. Introductory Economic Models59m
- 3. Supply and Demand3h 43m
- Introduction to Supply and Demand10m
- The Basics of Demand7m
- Individual Demand and Market Demand6m
- Shifting Demand44m
- The Basics of Supply3m
- Individual Supply and Market Supply6m
- Shifting Supply28m
- Big Daddy Shift Summary8m
- Supply and Demand Together: Equilibrium, Shortage, and Surplus10m
- Supply and Demand Together: One-sided Shifts22m
- Supply and Demand Together: Both Shift34m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
- Consumer Surplus and WIllingness to Pay33m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Floors: Finding Areas54m
- 6. Introduction to Taxes1h 25m
- 7. Externalities1h 3m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. Introducing Economic Concepts49m
- Introducing Concepts - Business Cycle7m
- Introducing Concepts - Nominal GDP and Real GDP12m
- Introducing Concepts - Unemployment and Inflation3m
- Introducing Concepts - Economic Growth6m
- Introducing Concepts - Savings and Investment5m
- Introducing Concepts - Trade Deficit and Surplus6m
- Introducing Concepts - Monetary Policy and Fiscal Policy7m
- 11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
- Calculating GDP11m
- Detailed Explanation of GDP Components9m
- Value Added Method for Measuring GDP1m
- Nominal GDP and Real GDP22m
- Shortcomings of GDP8m
- Calculating GDP Using the Income Approach10m
- Other Measures of Total Production and Total Income5m
- Consumer Price Index (CPI)13m
- Using CPI to Adjust for Inflation7m
- Problems with the Consumer Price Index (CPI)6m
- 12. Unemployment and Inflation1h 22m
- Labor Force and Unemployment9m
- Types of Unemployment12m
- Labor Unions and Collective Bargaining6m
- Unemployment: Minimum Wage Laws and Efficiency Wages7m
- Unemployment Trends7m
- Nominal Interest, Real Interest, and the Fisher Equation10m
- Nominal Income and Real Income12m
- Who is Affected by Inflation?5m
- Demand-Pull and Cost-Push Inflation6m
- Costs of Inflation: Shoe-leather Costs and Menu Costs4m
- 13. Productivity and Economic Growth1h 17m
- 14. The Financial System1h 37m
- 15. Income and Consumption52m
- 16. Deriving the Aggregate Expenditures Model1h 22m
- 17. Aggregate Demand and Aggregate Supply Analysis1h 18m
- 18. The Monetary System1h 1m
- The Functions of Money; The Kinds of Money8m
- Defining the Money Supply: M1 and M24m
- Required Reserves and the Deposit Multiplier8m
- Introduction to the Federal Reserve8m
- The Federal Reserve and the Money Supply11m
- History of the US Banking System9m
- The Financial Crisis of 2007-2009 (The Great Recession)10m
- 19. Monetary Policy1h 32m
- 20. Fiscal Policy1h 0m
- 21. Revisiting Inflation, Unemployment, and Policy46m
- 22. Balance of Payments30m
- 23. Exchange Rates1h 16m
- Exchange Rates: Introduction14m
- Exchange Rates: Nominal and Real13m
- Exchange Rates: Equilibrium6m
- Exchange Rates: Shifts in Supply and Demand11m
- Exchange Rates and Net Exports6m
- Exchange Rates: Fixed, Flexible, and Managed Float5m
- Exchange Rates: Purchasing Power Parity7m
- The Gold Standard4m
- The Bretton Woods System6m
- 24. Macroeconomic Schools of Thought40m
- 25. Dynamic AD/AS Model35m
- 26. Special Topics11m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Producer Surplus and Willingness to Sell
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