Calculating

Consumer/Producer
Surplus
HL - Paper 3
Learning outcomes:
Students will:
Calculate market equilibrium
Calculate p-intercept for Quantity Demanded
Calculate p-intercept for Quantity Supplied
Calculate consumer & producer surplus
Calculating consumer/producer surplus
Steps:
1. Calculate Market Equilibrium Price
2. Calculate price intercept for Quantity Demanded
3. Calculate price intercept for Quantity Supplied
4. Find the area of both right triangles (CS & PS)
Try this...
Qs = -400 + 50P
Qd = 800 - 30P
Follow the steps and remember to label
Price & Quantity Equilibrium
Price intercept for Qd
Price intercept for Qs
Step 1: Market Equilibrium
Qs = -400 + 50P Qd = 800 - 30P
-400 + 50P = 800 - 30P
80P = 1200
P = $15
Find Equilibrium Quantity
Qs = -400 + 50(15)
Qs = 350
Step 2:
Calculate price intercept for Qd
Qd = 800 - 30P
when Qd = 0 the price is ?
0 = 800 - 30P
-800 = -30P
P = $26.66
Step 3:
Calculate price intercept for Qs
Qs = -400 + 50P
When Qs = 0 then the price is ?
0 = -400 + 50P
400 = 50P
P = $8
Step 4:
So...
Pe = $15
Qe = 350 units
P-int Qd = $26.66
P-int Qs = $8
Now find the area of the 2
right triangles
http://www.synthium.net/resources/internet-marketing/marketing-
guide/images/simple-supply-and-demand.png
Consumer Surplus
The area above the Pe and below the
Demand curve.
CS = b x h
b = 350
h = 26.66 - 15 or 11.66
CS = 350 x 11.66
CS = 2040.5
Producer Surplus
The area below the Pe and above the Supply
curve
PS = b x h
b = 350
h = 15 - 8 or 7
PS = 350 x 7
PS = 1,225
CS, PS and Total Welfare
CS = 2040.5
PS = 1,225
Total Welfare = PS + CS
TW = 2040.5 + 1225
TW = 3265.5