How we Can Measure Consumer & Producer Surplus

Consumer Surplus: The difference between the maximum amount consumer willing to pay for the goods or services but the amount actually paid is called Consumer Surplus.

Producer Surplus: The difference between the amount producer willing to sell the goods and services but the producer actually sold is called Producer Surplus.

This can be explained by taking Yippee Noodles of ITC Product as an example of measuring consumer surplus and producer surplus.

1. The above shows that the Demand and supply are equal at the equilibrium point.
2. Consumer Surplus of the product can be calculated by Consumer Surplus = Max price willing to Pay - Actual Price, Consumer Surplus is graphically shown as the area under the Demand Curve and above the Equilibrium point.
3. Producer Surplus of the product can be calculated by Producer Surplus = Actual Price sold - Willing to sell, Producer Surplus is graphically shown as the area above the Supply Curve and below the Equilibrium point.