Producer Surplus

AAA

DEFINITION of 'Producer Surplus'

An economic measure of 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.

 

Producer Surplus

This is shown graphically above as the area (Producer Surplus) above the producer's supply curve that it receives at the price point (P(i)). The size of this area increases as the price for the good increases.

INVESTOPEDIA EXPLAINS 'Producer Surplus'

For example, say a producer is willing to sell 500 widgets at $5 a piece and consumers are willing to purchase these widgets for $8 per widget. If the producer sells all of the widgets to consumers for $8, it will receive $4,000. To calculate the producer surplus, you subtract the amount the producer received by the amount it was willing to accept, (in this case $2,500), and you find a producer surplus of $1,500 ($4,000 - $2,500).

VIDEO

Loading the player...
RELATED TERMS
  1. Adjusted Surplus

    The surplus (assets minus liabilities) of an insurance company ...
  2. Surplus

    The amount of an asset or resource that exceeds the portion that ...
  3. Demand

    An economic principle that describes a consumer's desire and ...
  4. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
  5. Supply

    A fundamental economic concept that describes the total amount ...
  6. Marginal Rate of Technical Substitution

    The rate at which one factor has to be decreased in order to ...
RELATED FAQS
  1. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  2. What's the difference between economic value added (EVA) and producer surplus?

    The difference between economic value added (EVA) and producer surplus is that EVA measures the returns of a company above ... Read Full Answer >>
  3. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  4. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
  5. How do "factor endowments" impact a country's comparative advantage?

    Factor endowments impact a country's comparative advantage by affecting the opportunity cost of specializing in producing ... Read Full Answer >>
  6. How do fixed and variable costs each affect the marginal cost of production?

    The total cost of a business is comprised of fixed costs and variable costs. Fixed costs and variable costs affect the marginal ... Read Full Answer >>
Related Articles
  1. Economics

    What's a Producer Surplus?

    In economics, producer surplus is the difference between the price at which the producer actually sells a product and the minimum price the producer would have accepted for the product. The surplus ...
  2. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  3. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  4. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  5. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  6. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  7. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.
  8. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  9. Economics

    Explaining Working Capital Turnover

    Working capital turnover is a ratio that helps show how efficiently a company is generating revenue per dollar of cash available to spend on operations.
  10. Economics

    What are Consumer Packaged Goods?

    Consumer packaged goods, CPGs, are items that consumers use and purchase often.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center