Producer Surplus


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.


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BREAKING DOWN '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).

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  1. Why are economists interested in the consumer surplus?

    Economists are interested in consumer surplus because it measures economic welfare, plays a large part in changing market ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
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    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>

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