Alright, now let's calculate consumer and producer surplus when we're given equations and we have to use just a little bit of algebra. Let's do it. Alright, so when we're calculating consumer and producer surplus, at least in this video, we're only going to deal with equilibrium. We're going to be at equilibrium calculating consumer surplus, but I just want to point out that in step 1, this is something we've done in a previous video. This is finding the equilibrium price and quantity using a little bit of algebra and we've done that before. I suggest if you don't remember how to do that to watch that video again, but we're going to do it in an example here just to reiterate. Alright? And in step 2, I want to note this term, axis price that I'm using. So find the axis price when quantity demanded equals 0. I made up this term; that's not the real term. That's kind of how I think about it. So let me just show you what I mean over here before we get to the example. I'm going to draw a little example standard supply-demand curve graph, excuse me, a graph over here. So let's say we've got our supply and demand right there, right, and we've got our equilibrium. So this is our price axis, our quantity axis, right? We've got our equilibrium price right here P star and our equilibrium quantity right here Q star, right? and notice that, to calculate our areas of our producer and consumer surplus, so if this is our consumer surplus right here, right, the area below the demand curve, above the market price, this triangle right here, to calculate that we're going to need this price way up here where the demand curve is crossing the axis, and that's what I call the axis price, the demand axis price right there, Right. And then down here, we're also going to be solving when we do our producer surplus, we're going to need this point where the supply curve is crossing the price axis right there, right? This point right here where
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Quantitative Analysis of Consumer and Producer Surplus at Equilibrium - Online Tutor, Practice Problems & Exam Prep
To calculate consumer and producer surplus, first determine the equilibrium price and quantity where quantity demanded equals quantity supplied. Use the demand and supply equations to find the demand axis price and supply axis price. Consumer surplus is the area above the equilibrium price and below the demand curve, while producer surplus is the area below the equilibrium price and above the supply curve. The formulas for these areas involve calculating the base and height of the respective triangles formed on the graph, leading to insights on market efficiency and economic welfare.
Let's calculate consumer and producer surplus when we are given equations for supply and demand. Algebra time!
Quantitative Analysis of Consumer and Producer Surplus
Video transcript
The supply and demand curves for a product are as follows. What is consumer surplus in this market?
QD = 15 - 2P
QS = -15 + P
The supply and demand curves for a product are as follows. What is producer surplus in this market?
QD = 15 - 2P
QS = -15 + P