What you’ll learn to do: define and calculate consumer, producer, and total surplus; graphically illustrate consumer, producer, and total surplus
Imagine that you want to buy a new smartphone. You have been saving up money and are willing to pay $500 for you new phone. To your surprise, you go to the phone store and learn that recent changes in phone company legislation have lowered the price of your favorite phone to only $250. This is an obvious win for you, but from an economic standpoint, there is a surplus in the market. Consumers are willing to pay more than $250 for cell phones, so the equilibrium price is actually less than what consumers would be willing to pay. In this outcome, we will understand what happens to a market when there is a consumer, producer, or total surplus.
The learning activities for this section include:
- Reading: Surplus
- Self Check: Consumer, Producer, and Total Surplus
Take time to review and reflect on each of these activities in order to improve your performance on the assessment for this section.