Consumer Surplus
Consumer surplus measures the
difference between total benefit of consuming a given quantity of output and the total expenditures consumers pay to obtain that quantity.
Here, total benefits are given by the shaded area OCDE; total expenditures are given by the rectangle OBDE. The difference, shown by the triangle BCD, is consumer surplus.
Producer Surplus
Producer surplus can be defined as
The difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good.
The difference, or surplus amount, is the benefit that the producer receives for selling the good in the market.
Producers' surplus exists when actual price exceeds the minimum price sellers will accept.
Here, total revenue is given by the rectangle OBDE, and total costs are given by the area OADE. The difference, shown by the triangle ABD is producer surplus.
Community Surplus
is the welfare of society and it is made up of a consumer surplus plus a producer surplus. It exists when it is impossible to make someone better off without making someone else worse off.
When the consumer surplus is equal to producer surplus
It exists when the market is in equilibrium, with no external influences and no external effects.
Market is said to be socially efficient and community surplus is at its maximum.
