 Hello, let's continue to talk about supply and demand and today we are going to talk about So consumer surplus and a producer surplus our desire in economy is Greater than our resources So that's called a scarcity and that's the general way way of saying what economics is about Yet, we haven't really talked about how firms and consumers respond to those scarcity When they have series of choices So now in this video, we're gonna move on to that question What do Participants get from by participating in the market. This can be presented in the simply supply and demand curves here Okay in this graph We've got price on the vertical axis Quantity on the horizontal axis and there is a market equilibrium price, right? Haven't changed any numbers yet. So 25 is the market equilibrium price 500 is market equilibrium quantity where supply and demand Intercepts each other. So this is the point On day three when we had a function of forms We set the prices equal to each other, right? Price for demanders and price for suppliers equal then we solve it for two, which is a quantity then Then you get the market equilibrium price and market equilibrium quantity. So now let's focus on the graph Let's first focus on the demand graph demand curve One interpretation of demand curve is how much consumers are willing to pay for that product so 100 units people are willing to pay this much and for 200 units people are willing to pay this much and For 300 people are willing to pay $35 Okay, so that's how you read the demand curve When you look at the height of demand curve when quantities are less than 500 Right. Okay. So here is a quantity less than 500. So we are only looking at this part So this part the willing needs to pay For consumer the demand curve is a higher than the market price Right. There's a whole thing mm-hmm Then we call We call that area Consumer surplus Why do we call it consumer surplus? Because the height of the demand curve is what you would be willing to pay and suppose you go to the store with a cutoff Price in mind and when you find out that you only pay the market price, which is 25 Which is the just fraction of the value then that's a surplus to you So that's why we call it consumer surplus here so that this area Triangle above the market price the equilibrium market price up to the demand curve this ADB is The consumer surplus Okay, let's look at this supply side another way to find defined So search supply curve is the marginal cost. So this is a supply curve It's a marginal cost of Producing a unit of product. So marginal cost to produce a 100 unit is this much and Marginal produce the marginal cost of a producing 300 units is This and the marginal cost of producing 500 unit is units are $25 so again This is the cost for product producer The supply curve is the cost of producing the units but Since we know that $25 is the market price then people are willing to pay $25 So therefore this area above supply curve up to the market price Equilibrium market price is called producer Surplus Okay We have a situation here. So we only have looked at the market equilibrium price and then quantity situation, but here, let's say the price is No longer $25 price here is $15 So that's the market price. Let's say and when The price is only $15 suppliers don't want to produce much More, right? So they only they used to produce 500 units, but now they are producing only 300 units and at this level So this is a new price line. That's $15 Horizontal line at $15 is the new price line. So therefore The area above supply curve up to the new price line is called producer surplus and the consumer surplus on the other hand is above Market price line, right, which is a $15 and Up to the demand curve. So this whole thing is Now the consumer surplus And there is a this triangle here It's called the dead weight loss may have heard about it already and This is a dead weight loss We call it loss because we are comparing the situation where there is this Equilibrium situation, which is the most efficient situation But compared to that producer Only produce a 300 units instead of 500 units. So there is this loss to society and loss to consumers and loss to producer. So I hope you can calculate all these areas If you are given all these numbers, I mean the precise numbers Okay, that was This was a market shortage case. The price was below The market price Market equilibrium price and now here is another situation It is called the market surplus because the price the new price is now greater Than the equilibrium price, which is now $35 so again at $35 if people a lot of Producers, of course, they want to they are willing to produce a lot more So they are willing to produce a 700 units instead of 500 units Which were in the market equilibrium quantity Yet The demanders to consumers they only want to buy 300 units at The price is equal to 35 so therefore the Consumer surplus, so if you're calculating consumer surplus the the area above Market price, which is now set as 35 up to the demand curve So this little triangle. It's a purple little triangle is called the consumer surplus on the other hand the producer now gains Sir surplus Some parts of consumer surplus is now Given to producers because the area above supply curve up to the new price line, which is a $35 is The producer surplus, so there's a whole thin entire this Part is now producer surplus again There is a loss that way loss because this market is not efficient and When the market is not efficient that means when the price is not at the market equilibrium price and The quantity is not at the market equilibrium quantity. Then There is going to be always loss to the society So from consumer surplus since producer surplus does some of consumer surplus and producer surplus is the value of this market Participating in this market leaves surplus correct So therefore we called the sum of consumer and producer surplus is top total surplus Okay, and we have looked at the consumer surplus and then producer surplus and also that way loss