Total Surplus
What is Total Surplus?
Total surplus is the sum of consumer surplus and producer surplus.
It represents the total net benefit to society from the production and consumption of a good or service. At the equilibrium price and quantity, total surplus is maximized.
Total Surplus: a worked example
Suppose a market clears at $20 with 300 units traded, the highest price any buyer would pay is $50, and the lowest price any seller would accept is $5, with both curves straight lines. Consumer surplus is the triangle above the price: 1/2 x 300 x (50 - 20) = 1/2 x 300 x 30 = $4,500. Producer surplus is the triangle below it: 1/2 x 300 x (20 - 5) = 1/2 x 300 x 15 = $2,250. Total surplus is 4,500 + 2,250 = $6,750, and no other quantity in this market produces a larger number.
The mistake students make with total surplus
Students treat a lower price as automatically better for society, so they expect a price ceiling to raise total surplus because consumer surplus goes up. Consumer surplus can rise while total surplus falls. A binding ceiling cuts the quantity traded below equilibrium, and every unit that no longer trades was worth more to its buyer than it cost its seller, so that value vanishes as deadweight loss. Total surplus measures the size of the pie, not who gets which slice.
Total Surplus questions
How do you calculate total surplus on a supply and demand graph?
Total surplus is the area between the demand curve and the supply curve, out to the quantity actually traded. With straight-line curves that area is a triangle, so take half the base times the height, where the base is the quantity traded and the height is the vertical gap between the two curves at the first unit. You can also compute consumer surplus and producer surplus separately and check that they add to the same figure.
Why is total surplus maximized at equilibrium?
Total surplus is largest at the equilibrium quantity because that is where every worthwhile trade happens and no wasteful one does. Below equilibrium, some buyer values a unit more than a seller's cost of making it, so a gain is being left unclaimed. Above equilibrium, units cost more to produce than buyers value them, which subtracts from the total. The quantity where value equals cost is the turning point.
Can total surplus fall even if consumer surplus rises?
Total surplus can fall while consumer surplus rises, and that combination is common with price controls, subsidies and monopoly pricing. A binding price ceiling, for example, transfers some producer surplus to the buyers who still get the good, which lifts consumer surplus, while the trades that stop happening destroy surplus outright. Judge the policy on the sum of the two, then discuss the transfer separately.
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Related terms
Common comparisons
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