Producer surplus = market price received by sellers − minimum price sellers are willing to accept
Consumer surplus = maximum price buyers are willing to pay − market price paid by buyers
Producer surplus on a supply curve = area above the supply curve and below the market price
Consumer surplus on a demand curve = area below the demand curve and above the market price
For a single unit, producer surplus = price received − marginal cost
For a single unit, consumer surplus = willingness to pay − price paid
For multiple units, producer surplus = sum of each unit’s price received minus each unit’s minimum acceptable price
For multiple units, consumer surplus = sum of each unit’s willingness to pay minus each unit’s price paid
If supply and demand are linear, surplus can be calculated as triangle area
Triangle area = 1/2 × base × height
Base = quantity traded
Height for consumer surplus = demand intercept − market price
Height for producer surplus = market price − supply intercept
At equilibrium, use equilibrium price and equilibrium quantity to calculate both surpluses
Consumer surplus = area under demand curve and above equilibrium price up to equilibrium quantity
Producer surplus = area above supply curve and below equilibrium price up to equilibrium quantity