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Week 6 · Lecture outline

Week 6 — Lecture Outline · Consumer & Producer Surplus & Efficiency

Principles of Microeconomics · ECON 1 Fall 2026 · Prof. Kessler Fictional sample

Course: Principles of Microeconomics (ECON 1) · Silver Oak University (fictional sample) · Prof. Kessler
Objective 4 — consumer & producer surplus; allocative efficiency · SLO A & B
Meeting pattern: two 75-min sessions (≈150 min). Segment minutes below total ~150 — scale to your room.

The deck (E), the tutorial (C), and the workshop (P) all teach from this outline. Every number here is pre-computed and independently verified (see the verified box in §4).

Week at a glance
Big question When buyers and sellers agree on a price, who gets how much of the deal — and is the total "pie" as big as it can be?
By week's end students can (1) define willingness to pay and willingness to sell; (2) identify and compute CS as the area under demand above price, and PS as the area above supply below price; (3) compute total surplus = CS + PS and explain why the competitive equilibrium maximizes it; (4) explain what happens to surplus when a price is forced off equilibrium.
Key vocabulary willingness to pay (WTP), willingness to sell (WTA), consumer surplus, producer surplus, total surplus, allocative efficiency, deadweight loss (preview)
Materials whiteboard; the Week-6 readings/links; Desmos for the supply-and-demand diagram; an approved chatbot
Timing note 8 segments ≈ 150 min across two sessions. Trim Segment 7 (interaction) if short on time.

Segment 1 — HOOK: "The coffee you'd pay more for" (10 min)

Open with a quick poll: "You want a coffee. The shop charges $4. How many of you would have paid $5? $6? $7?" Hands go up, then drop off. Then the reframe: every student who'd have paid more than $4 just got a deal — they kept the difference as 'bonus' value. That invisible bonus is what we call consumer surplus. There's a symmetric version for the seller — if the coffee cost the shop $2 to make, they pocket $2 of producer surplus. This week we put both on a graph and add them up. That total is the size of the "pie," and the market equilibrium makes it as big as it can be.

Segment 2 — PLAIN-LANGUAGE IDEA: willingness to pay and willingness to sell (15 min)

Two foundational concepts before we draw anything:

Willingness to pay (WTP): the maximum price a buyer would pay for one more unit — essentially the value they place on it. If a buyer is willing to pay up to $20 for a concert ticket but pays $12, they gain $8 of consumer surplus on that ticket.

Willingness to sell (WTA or "reservation price"): the minimum price a seller would accept — essentially the cost of providing one more unit. If a seller needs at least $4 but receives $12, they gain $8 of producer surplus.

The surplus formulas:
- Consumer surplus (one buyer): WTP − Price paid
- Producer surplus (one seller): Price received − WTA
- In a market with many buyers and sellers, these aggregate into areas on the supply-and-demand diagram.

Emphasize: surplus is real economic value captured by the buyer or seller — it's not a statistical abstraction. WTP is what drives the demand curve (each point on the demand curve is a buyer's WTP); WTA is what drives the supply curve (each point on the supply curve is a seller's minimum acceptable price).

Segment 3 — THE MODEL: surplus as areas on the diagram (20 min)

Now build the graph step by step. Use the week's market:

Demand: P = 20 − 0.5Q Supply: P = 4 + 0.5Q

Draw supply and demand, label axes. Before solving, highlight the key areas:

  • Consumer surplus = the triangle above the price line and below the demand curve, between 0 and Q. Why? At Q=1, the first buyer's WTP is near P=19.5 but they only pay P; at Q=2, the next buyer's WTP is near P=19 — the whole area is buyers' accumulated "bonus."
  • Producer surplus = the triangle below the price line and above the supply curve, between 0 and Q. The first unit's seller would accept near P=4.5 but receives P; they gain that margin as surplus.
  • Both triangles share the quantity axis as their base; the price line separates them.

Segment 4 — WORKED EXAMPLE: compute CS, PS, and total surplus (28 min)

Set up on the board and do every step out loud.

Step 1 — Find equilibrium:
Set demand = supply: 20 − 0.5Q = 4 + 0.5Q → 16 = Q → Q = 16, P = 12

Step 2 — Identify the triangles:
- CS triangle: base on the quantity axis from 0 to 16; height = (demand intercept − P) = 20 − 12 = 8
- PS triangle: base on the quantity axis from 0 to 16; height = (P − supply intercept) = 12 − 4 = 8

Step 3 — Compute:

✅ VERIFIED NUMBERS (pre-computed; do not recompute live)

  • Q = 16, P = 12
  • CS = ½ × 16 × (20 − 12) = ½ × 16 × 8 = 64
  • PS = ½ × 16 × (12 − 4) = ½ × 16 × 8 = 64
  • Total surplus (TS) = CS + PS = 64 + 64 = 128

Step 4 — Interpret in words (the SLO-A habit): "At the market equilibrium, buyers as a group gain $64 worth of surplus — value beyond what they paid — and sellers gain another $64. Together they've created $128 of economic value that didn't exist before the trade."

Classic traps to kill on the spot:
1. CS is under the demand curve and above the price — not the other way around.
2. The base of both triangles is Q* (the traded quantity), not the axis intercepts.
3. Students often flip: "CS is the seller's area." Draw and label explicitly.

Segment 5 — ALLOCATIVE EFFICIENCY: why equilibrium maximizes total surplus (15 min)

The key theorem of the week: at the competitive equilibrium, every mutually beneficial trade that could happen does happen, and no trade that would reduce total surplus occurs. No price above or below P* can generate a larger total surplus.

Show it with the forced-price scenario:

If a price is forced to P = 8 (below equilibrium):
- Traded quantity falls to Q = 8 (constrained by the short side — sellers won't supply more at that price)
- CS = ½ × 8 × (20 − 8) = 48; PS = ½ × 8 × (8 − 4) = 16; TS = 64
- DWL = 128 − 64 = 64 — half the surplus simply disappears

If a price is forced to P = 16 (above equilibrium):
- Traded quantity falls to Q = 8 (constrained by buyers who won't demand more at that price)
- CS = ½ × 8 × (20 − 16) = 16; PS = ½ × 8 × (16 − 4) = 48; TS = 64
- DWL = 128 − 64 = 64 — again, same loss (symmetric here because slopes are equal)

The area that was surplus at equilibrium but is gone under the forced price is called deadweight loss. We'll analyze its sources (price controls, taxes, monopoly) in depth in Weeks 7 and 11 — but planting the concept here is the payoff of this week.

Segment 6 — POSITIVE vs. NORMATIVE: efficiency vs. equity (15 min)

The central normative fork of the week. Keep these two claims separate:

  • Positive: "The competitive equilibrium maximizes total surplus." — This is a testable, model-derived result. The model says it; economics agrees. This is not a value judgment.
  • Normative: "The competitive equilibrium is therefore fair and good." — This requires a judgment about how the surplus should be distributed, not just how large it is.

Total surplus of 128 divided equally (CS = PS = 64) is one outcome — but it could also be 100 CS and 28 PS, or any other split, with the same or different total. Who gets the bigger triangle depends on the relative elasticities of supply and demand — not on fairness. A price skewed toward buyers raises CS and cuts PS (or vice versa). Efficiency is a positive concept; equity is a normative one. Policy that trades some efficiency for a "fairer" distribution is a legitimate normative choice — but it should be stated explicitly as such.

This is Discussion 6's territory. Keep the lecture evenhanded: present the efficiency result clearly, then name the equity question as genuinely open.

Segment 7 — TECHNOLOGY WORKFLOW + AI-CRITIQUE (20 min)

Live demo (Desmos): plot both curves — type y = 20 - 0.5x and y = 4 + 0.5x into Desmos. Show the intersection at (16, 12). Shade or label the two triangles. Ask a chatbot: "On the market P = 20 − 0.5Q (demand) and P = 4 + 0.5Q (supply), what is consumer surplus at equilibrium?"

AI-critique moment (do this with the class): chatbots regularly make one or more of these errors:
- Confuse CS and PS (state CS as the seller's triangle)
- Use the wrong formula — e.g., compute CS as (P − demand intercept) × Q instead of ½ × base × height
- Use the demand or supply intercept as the base instead of Q*
- Forget the ½ (computing the rectangle, not the triangle)

Make the class verify each answer step by step against your board work. The correct CS is 64, PS is 64. The habit all term: the tool drafts, you judge.

Segment 8 — INTERACTION: think-pair-share (7 min) then CALLBACKS & TEASE (10 min)

Think-pair: "A buyer would pay $18 but pays $12. A seller would accept $6 but receives $12. What is the combined surplus created by this single transaction?" ($6 + $6 = $12.) "How does that relate to the area on the diagram?" (It's one 'slice' of the two triangles stacked.)

Callbacks: We've been building toward this since Week 3 — demand curve slopes down because each additional buyer has a lower WTP; supply curve slopes up because each additional unit costs more; the equilibrium is where they cross. This week we measured what that crossing means for total economic value.

Tease next week: "What happens to those triangles when the government steps in — a price ceiling, a price floor, or a tax? Spoiler: some of that surplus gets transferred, and some just disappears. That disappearance is deadweight loss, and Week 7 is all about measuring it."

Week 6 work: Lecture Tutorial, Practice, Quiz 6, Discussion 6, Assignment 6, and Workshop 6 — find equilibrium, draw the surplus triangles, compute CS + PS + TS, and audit the AI's triangle math.

Instructor FAQ — common stumbles

  • "Which triangle is CS — the upper or lower one?" CS is upper (demand is above price at equilibrium); PS is lower (supply is below price). Draw and label before computing.
  • "Why is it ½ × base × height?" Because the "triangle" really is a triangle — the sloped demand (or supply) line creates a right triangle with the price line and the vertical axis.
  • "What if supply and demand aren't linear?" The area is still CS (under demand, above price) and PS (above supply, below price), but computed with calculus or approximated; in this course we use the linear (triangle) case.
  • "DWL — where does it go?" It goes nowhere — it's destroyed value. Trades that would have been mutually beneficial simply don't happen. That's what makes it a "loss."
  • "If CS = PS, is that always true?" Only when the slopes of supply and demand are equal in magnitude (as in this week's market). Generally CS ≠ PS; the split depends on elasticities.
  • "Is efficiency the same as fairness?" No — efficiency (maximizing total surplus) is a positive result; fairness is a normative judgment about distribution. They're separable questions.

~ Prof. Kessler's edition · Fall 2026 · built with thecoursemaker.com