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Consumer and Producer Surplus Calculation, Slides of Business Administration

A step-by-step calculation of consumer and producer surplus using various examples. It includes calculations for individual consumers and producers as well as the market as a whole. The document also discusses the impact of price changes on consumer and producer surplus.

Typology: Slides

2021/2022

Uploaded on 09/27/2022

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ConsumerandProducerSurplus(1).notebook
1
February08,2016
Feb173:01PM
ConsumerandProducerSurplus
ConsumerandProducerSurplus
Slide5
Discussthedifferencebetweenwillingnesstopayandtheactualpricepaid.Noticedifferent
consumersvaluethebottledwaterdifferently.
Slide6
Tellthestudentsthattheslideisagraphicalrepresentationoftheinformationonslide6.Tellthe
studentsthatalthoughitisasteppedline,economistscallitademandcurve.
Slide7
Answersprovidedforslide7.
Slide8
Slideshadeuptoapriceof$2.50sothatonlythosepayingmorethan$2.50areshowing:
Mycah,Emma,Jacob,andIsabella.
Slide9
Includesaredlineshowingtheprice.Askstudentswhichconsumerswouldnotbuythebottled
water.
Slide10
ExplainthatRachelandEthanwouldchoosenottobuythebottledwaterbecausethearenot
willingpay$2.50.Or,theyvaluethewaterlessthanthepriceofthewater.
Slide11
Discussthedefinitionofconsumersurpluswithstudents.Havestudentscalculatethe
consumersurplusforeachcharacter.Clickontheindividualshadestorevealanswers.
Slide12
Theentiremarketincludesmanypotentialbuyersbecauseofthelargernumberofbuyers,the
steppedlinebecomessmooth.Thislineisthedemandcurve.Theareaabovethepricelineandbelowthe
demandcurvereflectsthedifferencebetweenwhatconsumersarewillingtopayandwhattheyactually
payitistheconsumersurplus.
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Feb 173:01 PM

Consumer and Producer Surplus

Consumer and Producer Surplus

Slide 5 Discuss the difference between willingness to pay and the actual price paid. Notice different

consumers value the bottled water differently.

Slide 6 Tell the students that the slide is a graphical representation of the information on slide 6. Tell the

students that although it is a stepped line, economists call it a demand curve.

Slide 7 Answers provided for slide 7.

Slide 8 Slide shade up to a price of $2.50 so that only those paying more than $2.50 are showing:

Mycah, Emma, Jacob, and Isabella.

Slide 9 Includes a red line showing the price. Ask students which consumers would not buy the bottled

water.

Slide 10 Explain that Rachel and Ethan would choose not to buy the bottled water because the are not

willing pay $2.50. Or, they value the water less than the price of the water.

Slide 11 Discuss the definition of consumer surplus with students. Have students calculate the

consumer surplus for each character. Click on the individual shades to reveal answers.

Slide 12 The entire market includes many potential buyers because of the larger number of buyers, the

stepped line becomes smooth. This line is the demand curve. The area above the price line and below the

demand curve reflects the difference between what consumers are willing to pay and what they actually

pay it is the consumer surplus.

Mar 2412:34 PM

Slide 13 Because the shape is a triangle, use the formula to calculate the area of a triangle to

calculate the value of the consumer surplus.

Slide 14 Have students calculate the answer.

Slide 15 Answer revealed. Consumer surplus is $3,200.

Slide 16 The price has decreased to $2. Point out that this affects two groups. The consumers who

would have purchased gadgets at $3 are gaining extra consumer surplus. In addition, at the lower

price new buyers are willing to purchase an additional one hundred gadgets.

Slide 17 Shows how the extra consumer surplus is allocated between existing and new customers.

Slide 18 Calculate the increase in consumer surplus acquired by existing buyers (those who were

also willing to buy at $3).

Slide 19 Answer revealed. Consumer surplus is $800.

Slide 20 Calculate the increase in consumer surplus resulting from new buyers.

Slide 21 Answer revealed. Consumer surplus is $50.

Slide 22 Using previous information, find the total increase in consumer surplus. Click the shades to

reveal answers.

Mar 2412:34 PM

Slide 33 Answer revealed. Producer surplus is $1,800.

Slide 34 The price has increased to $8. Point out that this affects two groups. The producers who

would have sold gadgets at $7 are gaining extra producer surplus. In a addition, at the higher price

new producers are willing to sell an additional one hundred gadgets.

Slide 35 Shows how the extra producer surplus is allocated between existing and new sellers.

Slide 36 Calculate the increase in producer surplus acquired by existing sellers (those who were

also willing to sell at $7).

Slide 37 Answer revealed. Producer surplus is $600.

Slide 38 Calculate the increase in Producer surplus resulting from new sellers. Answer: $50.

Slide 39 Answer revealed. Producer surplus is $50.

Slide 40 Using previous information, find the total increase in consumer surplus. Click the shades

to reveal answers.

Slide 41 Use the information to calculate total economic surplus. Click shades to reveal answers.

Slide 42 Lesson conclusions

Mar 2412:34 PM

Consider the potential buyers of cold bottled water offered

for sale on a hot summer day. People put different values on

the bottled water they have a differing willingness to pay.

Willingness to pay The maximum amount a buyer will pay

for a good.

willingness to

pay

price paid

consumer

surplus

Isabella 6

Jacob 5

Emma 4

Mycah 3

Rachel 2

Ethan 1

Mar 2412:34 PM

1

2

3

4

5

6

1 2 3 4 5

6

Isabella

Jacob

Emma

Mycah

Rachel

Ethan

Price

Quantity of Bottled Water

The demand curve reflects the willingness

to pay of six consumers.

How much is Isabella willing to pay?

How much is Mycah willing to pay?

Mar 2412:34 PM

1

2

3

4

5

6

1 2 3 4 5

6

Isabella

Jacob

Emma

Mycah

Rachel

Ethan

Price

Quantity of Bottled Water

While each of the people below value

the bottle of water differently, they each

pay the same price, $2.50.

Use the shade to show how

many people will purchase a

bottle of water.

Mar 2412:34 PM

1

2

3

4

5

6

1 2 3 4 5

6

Isabella

Jacob

Emma

Mycah

Rachel

Ethan

Price

Quantity of Bottled Water

While each of the people below value

the bottle of water differently, they each

pay the same price, $2.50.

Which characters would

choose not to buy the water?

Rachel and Ethan

Mar 2412:34 PM

While each of the people below value the bottle of water

differently, they each pay the same price, $2.50.

Consumer surplus is the difference between what consumers

are willing to pay and what they actually pay.

Calculate the consumer surplus for each person.

willingness to

pay

price paid

consumer

surplus

Isabella

Jacob $5 $2.

Emma $4 $2.

Mycah $3 $2.

Rachel

Ethan $

Mar 2412:34 PM

Price Consumer Surplus

Quantity of Gadgets (hundreds)

To calculate the value of consumer

surplus, find the area of the triangle.

area = .5(base)(height)

Mar 2412:34 PM

Price Consumer Surplus

Quantity of Gadgets (hundreds)

consumer surplus = .5(base)(height)

consumer surplus =

consumer surplus = $

Mar 2412:34 PM

Price Consumer Surplus

Quantity of Gadgets (hundreds)

If the price decreases to $2, what is the

increase in consumer surplus:

  • To existing customers?
  • To new customers?

Mar 2412:34 PM

Price Consumer Surplus

Quantity of Gadgets (hundreds)

If the price decreases to $2, what is the

increase in consumer surplus:

  • To existing customers shown in red.
  • To new customers shown in green.

Mar 2412:34 PM

Price Consumer Surplus

Quantity of Gadgets (hundreds)

Use the area of the red rectangle to

find the increased consumer surplus

to existing buyers.

area = (base)(height)

consumer surplus =

consumer surplus =

Mar 2412:34 PM

Price Consumer Surplus

Quantity of Gadgets (hundreds)

Use the area of the green triangle to

find the increased consumer surplus

to existing buyers.

area = (base)(height)

consumer surplus =

consumer surplus = $