Producer Surplus
What is Producer Surplus?
Producer Surplus is an economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The surplus amount is the benefit that the producer receives for selling the good in the market.
How is Producer Surplus different from Consumer Surplus?
What is Producer Surplus?
Producer Surplus is an economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The surplus amount is the benefit that the producer receives for selling the good in the market.
How is Producer Surplus different from Consumer Surplus?
- Producer surplus is the amount that producers benefit by selling at a price that is higher than the price that they would be sell for.
- Consumer surplus is the amount that consumers benefit by buying at a price that is lower than the price that they would buy for.
Khan Academy Video on Producer Surplus:
Effect of taxes and subsidies on producer surplus:
Questions: Determine the producer surplus generated.
a. Odin lists his old barbies on eBay. He sets a minimum acceptable price of $75. After two days, the final bid for the barbie is $75. He accepts the bid.
b. Odin advertises his ugly car for sale in the used-car section of the local dealership website for $8,000, but Odin is willing to sell the car for a price higher than $1,200. The only offer Odin gets is $1,000, which he does not accept because no one wants to drive an ugly car.
c. Odin likes his job so much that he would do it for free. On the other hand he gets paid $10,000 annually.
Answers:
a. Odin will receive no producer surplus since Price=Cost
b. No trade takes place because Odin’s cost is $1,200, which is higher than the price of $1,000 he is offered. No producer surplus is created.
c. Odin’s cost is zero. He gets paid $10,000 for his time so his producer surplus is $10,000.
a. Odin lists his old barbies on eBay. He sets a minimum acceptable price of $75. After two days, the final bid for the barbie is $75. He accepts the bid.
b. Odin advertises his ugly car for sale in the used-car section of the local dealership website for $8,000, but Odin is willing to sell the car for a price higher than $1,200. The only offer Odin gets is $1,000, which he does not accept because no one wants to drive an ugly car.
c. Odin likes his job so much that he would do it for free. On the other hand he gets paid $10,000 annually.
Answers:
a. Odin will receive no producer surplus since Price=Cost
b. No trade takes place because Odin’s cost is $1,200, which is higher than the price of $1,000 he is offered. No producer surplus is created.
c. Odin’s cost is zero. He gets paid $10,000 for his time so his producer surplus is $10,000.