Calculating Consumer Surplus With A Price Floor

Minimum wage and price floors.

Calculating consumer surplus with a price floor.

Consumer surplus always decreases when a binding price floor is instituted in a market above the equilibrium price. Consumer surplus and demand curve. It 4 times 4 at six 2 is equal to 4 so producer surplus becomes 1 2 times four times for 16 and this equates to a so producer surplus is 8. To get total consumer surplus we add these values up so 15 11 5 3 34.

Price ceilings and price floors. Consumer surplus is an economic measurement to calculate the benefit i e surplus of what consumers are willing to pay for a good or service versus its market price. How price controls reallocate surplus. Consumer surplus producer surplus and total surplus.

Total surplus is defined as. Specifically a consumer surplus occurs when consumers are willing to pay more for a good or service than they currently pay. The theory explains that spending behavior varies with the preferences of individuals. Price and quantity controls.

Consumer surplus is the 16 plus the 24 and this adds up to 40 so consumer surplus is forty producer surplus becomes earlier the red triangle which is still the area below the price and above the supply curve. Calculating consumer surplus and producer surplus. How to find consumer surplus with supply and demand equations. This is the currently selected item.

If government implements a price floor there is a surplus in the market the consumer surplus shrinks and inefficiency produces deadweight loss. The total consumer surplus in this economy is 34. You will typically be given a linear demand curve so let s do another example. Though it sounds like a tricky calculation calculating consumer surplus is actually a.

Calculate consumer surplus with price floor. The effect of government interventions on surplus. The consumer surplus formula is based on an economic theory of marginal utility. This is a good intuitive example of calculating consumer surplus discretely but in reality most graphs won t look like this.

Calculate consumer surplus figure 2. Consumer surplus is a term used by economists to describe the difference between the amount of money consumers are willing to pay for a good or service and its actual market price.