(Econ) 4 questions.

>> In this feature, we're going to talk about an exhibit   in chapter three titled Consumers and Producers Surplus.   Let's begin by defining consumers surplus, CS.   Consumer surplus is the maximum buying price that a person repay   for a good minus the price paid.   So, let's give an example.   Suppose that the price paid for a good is 10 dollars   and the highest price that an individual would be willing   to pay for that good is let's say 15 dollars.   So, the consumer surplus in that case would be five dollars.   Now, let's represent this diagrammatically.   So, let's look at a demand curve.   We're going to put our axis in here, price and quantity   of a good and here is our demand curve that is downward sloping.   And we're going to have a small supply curve here just   intersecting right here because we want to--   just want to identify our equilibrium price.   Now, let's say our equilibrium price here is five dollars,   right?   Now, let's pick a certain quantity   on the quantity axis here 50   and let's ask ourselves what is consumer surplus equal   to on the 50th unit?   Well, to find the highest price that a person would pay   for the 50th unit, we go up from the 50th unit all the way   up to the demand curve.   And let's say that the price that corresponds   to that highest point on the demand curve is seven dollars.   So, the maximum buying price is seven dollars and the price paid   which is the equilibrium price is five dollars.   So, seven minus five is two dollars,   consumers surplus equals two dollars right here   on that 50th unit.   Now, that's on the 50th unit.   On the first unit, the consumer surplus would be higher.   On the 51st unit, it would lower but we're basically talking   about consumer surplus if we're talking about a good   that is continuous as equal to the following area.   Everything under the demand curve   and above the equilibrium price out to the equilibrium quantity,   here is the equilibrium quantity QE.   So, we're talking about this area that we're now coloring   in as the area of consumer's surplus, all right?   So let's redraw that one more time.   Here is quantity in price and we have a demand curve here.   Now, we've got out supply curve   that gives us our equilibrium price of five dollars.   And here is our equilibrium quantity, right?   So, consumer surplus is this area that we're now coloring in.   It's the area under the demand curve   and above the equilibrium price all the way out here   to the equilibrium quantity.   So, all this area that we're coloring in is consumer surplus.   Well, let's now talk about producer surplus.   Producer surplus is sometimes called seller surplus   and it is equal to the price receive   by the seller minus the minimum selling price,   the minimum selling price.   All right, so let's suppose that the price received by the seller   for a good, it's let's say 12 dollars and the lowest price   that the seller would have sold that good   for let's say is eight dollars.   So 12 minus eight gives us a producer surplus   of four dollars,   this diagrammatically represent this, right?   So, we've got quantity and price on our axis one more time   and we've got this upward sloping supply curve.   And where this time, we're going to draw   in a small demand curve here just   so what we can get equilibrium price.   And again, we're going   to say equilibrium price is five dollars.   Now, let's see what the producer surplus let's say is   on the 50th unit.   So, we're looking for producer surplus or seller surplus.   So what is the price received?   The price received by the seller is up here at 5 dollars.   The minimum selling price is obtained by going from 50   up to this point right here on the supply curve and coming   over to the price axis.   Let's say that that dollar amount is three dollars.   So, the difference here between the price received   and the minimum selling price is two dollars   and that's what a producer surplus equals on the 50th unit.   Well, it might be different for something less than 50   and something more than 50 so let's go and--   go ahead and map out our equilibrium quantity QE   right here.   And so, producer surplus on all units is going to be the area   that I'm coloring in right now, it's going to be the area   under the equilibrium price   and above this supply curve all the way   out to equilibrium quantity, right?   We'll do that one more time.   So again, here is our axis P and Q, price and quantity.   We've got this upward sloping supply curve,   we've got our demand curve just so that we can get   out equilibrium price here for five dollars   and a producer surplus is this area   under the equilibrium price.   And above the supply curve, the area that I'm coloring in now,   all the way out to the equilibrium quantity.   Here is the equilibrium quantity QE.   All right, let's put this demand and supply curves together   and look at producer surplus and consumer surplus together.   So here, we have price and quantity again on our axis,   we have a downward sloping demand curve   and an upward sloping supply curve.   Well, notice our equilibrium right here,   there is our equilibrium point.   Here is our equilibrium quantity   and here is our equilibrium price.   And let's designate two areas here, this is area A   and this is area B, all right?   So what is consumer surplus equal to in equilibrium?   It would be area A, right?   So it's this area right in here   that we're coloring in right now.   So, what is our producer surplus equal to?   It is equal to area B. It's this area that we're coloring   in here in blue, all right?   So we have consumer surplus A and producer surplus B.   [ Silence ]