College Textbook Market:
• On average, students spend $1,200 per
semester
• An 82% rise in price from 2002-2012
• More than an 800% increase from
1978!!!
So, what do college students do?
Consumer and
Producer Surplus
Understand and identify the associated benefits of consumer
and producer surplus in the marketplace and be able to
explain and illustrate market factors that increase/decrease
consumer/producer benefits.
Willingness to Pay
 Let’s assume we are looking at a perfectly competitive
market for used college textbooks (done to maximize
consumer/producer surplus in high priced textbook
market)
 The maximum price at which you were willing to buy
that good or service is a person’s willingness to pay
 Those price points can be translated into a demand curve
for the used textbook
Let’s take a look…
The Demand Curve
 In the market for a used Macro textbook, this is what these 5
students are willing to pay for it (their willingness to pay)
Consumer Surplus
 Let’s assume the book is sold for $30…
 Surplus: the left over amount consumers have after
making the transaction
 Price (willing to pay) − Price (paid) = individual consumer
surplus
 Ex: Aleisha’s CS: $59 − $30 = $29
 Can apply to the individual or to the entirety of the
marketplace
 If we do this for every individual in the marketplace we can
calculate the total consumer surplus
 The remaining money/opportunity still in possession of the
consumer that can be utilized for other opportunities
Consumer Surplus
The total
consumer
surplus is equal
to $49
If the individuals
were not willing
to buy at $30
they have no
consumer
surplus
Consumer Surplus
 The total consumer surplus generated by purchases of
a good at a given price is equal to the area below the
demand curve but above the price (equilibrium price)
Change in Price and
Consumer Surplus
 Let’s go back to
the used textbook
market…
 If the price
decreases to
$20, what is the
result?
• Increase in total
consumer surplus!!!
• Aleisha gains, Brad
gains, Claudia gains, and
Darren is now included
• Vice versa: increase in
price would decrease
CS!
Producer Surplus
 Used textbook market…lowest prices at which different
students are willing to sell their used textbooks.
Producer Surplus
 These price points, willingness to sell, are all different because
people’s opportunity costs are all different
 All associate a different value to their book
 Cost: the lowest price at which the seller is willing to sell their
good/service
 Producer Surplus: gains made by the seller from making a
transaction
 Price received − seller cost = producer surplus
 Let’s assume the market price for the textbook is $30
 Ex. Andrew: $30 − $5 = $25 Andrew’s Producer Surplus
Producer Surplus Illustrated
Total
producer
Surplus of
$45
Donna and
Engelbert
are not
included
because
their costs
were
greater
than the
market
price, so
they never
made the
transaction
Producer Surplus
 The total producer surplus from sales of a good at a given price
is the area above the supply curve but below the market price.
 Rise in price will increase producer surplus
 The producers selling at the initial market price will now gain
surplus and new sellers stand to gain a surplus for the first time
 Vice versa is also true
Total Surplus
We can combine the CS and PS in order to get the total
surplus (TS) in the market…
The regular market forces we have learned about will impact CS and PS…