Consumer and Producer Surplus

Consumer Surplus and Producer Surplus

Consumer surplus is the monetary difference between what consumers are willing to pay and the actual market price of a product. It is a measure of the economic benefit consumers receive from buying goods and services. Producer surplus is the monetary difference between the minimum amount of payment a producer is willing to accept and the actual market price of a product. It's a measure of economic welfare producers gain from selling goods (Humphreys 963). The Consumer and Producer surplus in an economy depends on the amount of goods the producer is willing to supply and the level of consumer demand.

Consumer Surplus and Diminishing Marginal Utility

Consumer surplus is based on a theory of diminishing marginal utility. A person is willing to pay for a particular product or service depending on the amount of utility he receives from it (Humphreys 963). The advantage of a product varies from one individual to another depending on their personal preferences. Therefore, a customer is willing to pay $200 for a custom-tailored dress because of the utility it brings her. If a consumer is willing to pay more than the current market price, the consumer surplus is positive.

Producer Surplus and Monetary Gain

Producer surplus is the difference between what a producer is able and willing to accept for selling and the actual monetary gain from the sale. The difference between the two prices determines the amount of benefit a producer receives (Humphreys 963). The tailor is prepared to sell the dress at a minimum of $100, while the posted price is $150. A higher product price means the producer will gain from the sale and act as an incentive to the producer to supply more.

Producer Surplus in the Coffee Market

Coffee is a common drink consumed countrywide and a person can buy a cup from different suppliers. However, the price varies widely depending on where it is purchased. For example, Starbucks charges more than McDonald's for a cup of espresso. Mostly, consumers have different perceptions of what's the most reasonable price for a cup of coffee and separate personal preferences on where they buy their coffee. The contrast between the highest payable amount and the lowest available price of coffee is the producer surplus.

Work Cited

Humphreys, Ashlee, and Kent Grayson. "The intersecting roles of consumer and producer: a critical perspective on co‐production, co‐creation, and presumption." Sociology Compass 2.3 (2008): 963-980.