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Consumer Surplus Essay

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Consumer surplus is the benefit that consumers get if they are willing to pay more for a certain product than the actual market price is. It is also the area under the demand curve and above the market price (1+2+3). Producer surplus, on the other hand, shows us the difference between how much the producer actually receives and the minimum amount they would be willing to accept. In the figure 1 it is represented by the area below the market price and above the supply curve. (4+5+6). We talk about deadweight loss when the economic efficiency decreases – this is usually caused by not achieving the equilibrium for a certain situation (for example by setting a price floor or ceiling). The areas 1, 2 and 4 together represent the consumer surplus …show more content…

This can be considered an advantage for the employees – they are assured that their wage will not go below the price floor. On the other hand, the same price floor could be seen as a disadvantage for the employers – they are not able to afford the same amount of hours of labor as in the first situation (situation without minimum wage). This situation inevitably leads to oversupply of labor – increase of unemployment …show more content…

The government surplus is represented by B and E, and last but not least the deadweight loss is defined by areas D and G. WHY A vertical supply curve appears when the same quantity is produced at any price, which can be caused by, for example, a limited amount of good or service. No matter how much consumers are willing to pay, we cannot produce more of it. VAN GOGH`S PAINTINGS An almost vertical demand curve is caused by inelastic demand – demand for products that we find necessary for our lives and at the same time we cannot find substitutes for. Even if the price rises or drops, people still need a very similar amount (specific examples might be gasoline, electricity, medicaments). The tax would be almost totally paid by consumers in the second situation, almost vertical demand curve. Even though the price paid increases, the quantity demanded stays the same – actors are still willing to buy a very similar amount. To be specific, diabetics are going to buy the amount of insulin they need, even if the taxes increase. The tax, then, comes out of the consumer

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