Economic surplus
- This page deals with the various forms of economic surplus, including producer, consumer, government, and social/total surplus. For information about a budget surplus, see budget deficit.
The term surplus is used in economics for several
related quantities.
The consumer surplus is the amount that consumers benefit by being
able to purchase a product for a price that is less than they would be
willing to pay.
The producer surplus is the amount that producers benefit by selling
at a market price that is higher than they would be willing to sell for.
On a standard supply and demand diagram these are the areas in the
triangles below:
The consumer surplus shows up above the price and below the demand
curve, since the consumer is paying less for the item than the maximum
that they would pay.
The producer surplus shows up below the price and above the supply curve, since
that is the minimum that a producer can produce that quantity with.
If the government intervenes, using, for example, a tax or a subsidy, then the graph of supply and demand becomes more complicated and will also include an area that represents government surplus.
Combined, the consumer surplus, the producer surplus, and the government surplus (if present) make up the social surplus or the total surplus.
A basic technique of bargaining for both parties is to pretend that one's surplus is less than it really is: the seller may argue that the price he or she asks hardly leaves him or her any profit, while the customer may play down how eager he or she is to have the article.
see also: microeconomics, price discrimination, price skimming negotiation
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