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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.
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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.
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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
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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
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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?
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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.
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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
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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 $
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Price Consumer Surplus
Quantity of Gadgets (hundreds)
To calculate the value of consumer
surplus, find the area of the triangle.
area = .5(base)(height)
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Price Consumer Surplus
Quantity of Gadgets (hundreds)
consumer surplus = .5(base)(height)
consumer surplus =
consumer surplus = $
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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?
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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 = $
