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14.2. CONSUMER AND PRODUCER SURPLUS 1
14.2 Consumer and Producer Surplus
Consumer and Producer Surplus
Let us direct our attention towards applying some of the concepts that we learned in regards to the area of
region bounded by two curves. In this section we will use the following notation.
D(q) will denote the price-demand equation of product.
S(q) will denote the price-surplus equation of a product.
The variable q will denote the quantity of the product that is in question. In a free-market economy, the
price of an product is determined by the relationship between its supply and demand. A positive surplus
occurs when the price is above a certain price-level; whereas, a negative surplus (i.e. shortage) occurs the
price is below this price-level. This price-level is known as the equilibrium price. It is the price in which the
eects of demand is in balance with a products supply.
Denition 14.1: Equilibrium-Point for Supply and Demand
The equilibrium-point between for D(q) and S(q) is the point (q
0
, p
0
) such that p
0
= D(q
0
) = S(q
0
).
The p
0
is referred to as the equilibrium price, and q
0
is known as the equilibrium quantity.
The equilibrium-price p
0
is the price per unit that the consumers are willing to purchase, and the price that
producers are willing to sell.
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Example 1.2 Equilibrium-point
Find the equilibrium-point if the D(q) = 25 + 0.2q and S(q) = 1 + 0.01q
2
Solution
The equilibrium-point between D(q) and S(q) can be found by solving the equation D(q) = S(q).
D(q) = S(q)
25 0.2q = 1 + 0.01q
2
(q 60)(q + 40) = 0
Since it is impractical for q = 40, it must be the case that q = 60; in other words, the equilibrium-quantity is q
0
= 60,
which in turns yields the equilibrium-price as S(60) = D(60) = 37. Therefore, the equilibrium-point point is (60, 37).
Sometimes it necessary to determine the dierence between the maximum price and the actual price that a
consumer is willing to pay for a product. This quantity is know as the consumer surplus.
Denition 14.2: Consumer Surplus
The consumer surplus at the price-level of p = D( q) is dened as
CS =

q
0
(D(q) p) dq.
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14.2. CONSUMER AND PRODUCER SURPLUS 3
Example 2.2 Consumers Surplus
Determine the consumer surplus at a price-level of of $5 for the price-demand equation D(q) = 41 0.01q
2
.
Solution
The question that rst needs to be addressed is what is the value of q when p = 5.
p = D( q)
5 = 41 0.01 q
2
3, 600 = q
2
Since quantity is a nonnegative measure, then it follows that q = 6; therefore, the consumer surplus, at the given
price-level, is found by determining the area bounded by the functions D(q) and p = 5 on the interval [0, 6].

6
0
(41 0.01q
2
5) dq = 36q
q
3
3000

6
0
= 215.28
This value $215.28 represents the total savings to consumers who are willing to pay a higher price than $5 in order to
obtain the product.
The producer surplus measures the dierence between the price in which the producers are willing to
supply to the consumers and the actual price that they receive from the consumers.
Denition 14.3: Producer Surplus
The producer surplus at the price-level of p = S( q) is dened as
CS =

q
0
( p S(q)) dq.
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4
Example 3.2 Producers Surplus
Find the producers surplus at a price level of $30 if the price-supply equation is S(q) = 5 + 0.01q
2
.
Solution
In this situation, we are given p = 30 and we need to determine q. We can do this solving the equation p
0
= S(q
0
).
30 = 5 + 0.01 q
2
2500 = q
2
Since quantity is a nonnegative measure, then it follows that q = 50; therefore, the producer surplus, at the given
price-level, is found by determining the area bounded by the functions S(q) and p = 30 on the interval [0, 50].

50
0
(30 (5 0.01q
2
)) dq =
q
3
3000
+ 25q

50
0
=
5000
3
This value $
5000
3
$1666.67 represents the total amount gained by the producers who are willing to sell the product
to the consumers at a lower price than $8.
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14.2. CONSUMER AND PRODUCER SURPLUS 5
Consumer Surplus Producer Surplus
The total savings to the consumers who
are willing to pay more than the given price
of D( q) = p for a product.
The total gain to the producers who are
willing to supply a product at a price lower
than a given price S( q) = p.
If p is the equilibrium-price for D(q) and S(q), then there is stability between supply and demand.