Week 6 · Chapter

Chapter 6 — Consumer & Producer Surplus & Market Efficiency

Principles of Microeconomics Free sample edition

The module's primary reading · ~40–50 minutes · Objective 4 (measure consumer surplus, producer surplus, and market efficiency, and analyze price ceilings, price floors, taxes, and subsidies, including who bears a tax and the deadweight loss), building on Objective 2 (explain how demand and supply determine a market's equilibrium price and quantity, and predict how a shift in demand or supply changes them) and Objective 1 (use the tools of economic modeling — scarcity, opportunity cost, the production possibilities frontier, comparative advantage, and the gains from trade — and distinguish positive statements (what is) from normative statements (what ought to be)) · Read it first this week; the lecture, the slide deck, the tutorial, the quiz, and the Model Workshop all build on it.

In plain language

This week is about who gains when a market works, and by how much. When you buy something for less than it is worth to you, you come out ahead, and economists call that gain consumer surplus (the gap between what a buyer would pay and what the buyer does pay). When a seller gets more than the least they would accept, the seller comes out ahead too, and that gain is producer surplus (the gap between the price and the seller's cost). Add the two and you have total surplus (the whole gain from all the trades in a market). The big idea this week is that, in the model, a competitive market makes that total gain as large as it can be, and that how big the gain is and whether its split is fair are two different questions.

Why you already care about this

Think about the last time you got a deal you were glad about. Maybe you had decided you would pay up to 70 dollars for a ticket to see a band, and the ticket cost 40. You walked away 70 − 40 = 30 dollars ahead, even though no one handed you 30 dollars. The person who sold you that ticket may have been glad too. If 25 dollars was the least they would have taken, they came out 40 − 25 = 15 dollars ahead.

Nobody was cheated in that trade, and nobody was doing anyone a favor. Both of you gained, because the price landed between the most you would pay and the least the seller would take. That is the whole chapter in one ticket. This week you will measure those gains for a small market of used bicycles, then for the course's running market, and then ask what it means to say a market is "efficient."

By the end of this chapter you will be able to:

explain willingness to pay and willingness to sell and say when a trade can help both sides;
sum consumer surplus, producer surplus, and total surplus unit by unit from a ladder of values and costs;
find the efficient number of trades by pairing the highest values with the lowest costs;
compute consumer and producer surplus as triangles on a supply-and-demand diagram and describe each area in words;
explain why, in the model, the competitive equilibrium quantity makes total surplus as large as it can be;
tell a positive claim about efficiency from a normative claim about equity.

Carry this sentence with you: surplus is value minus price; efficient means biggest, not fairest.

Where we are

Already covered: Week 1 taught opportunity cost and the line between positive and normative statements. Week 2 showed that trade can make both sides better off. Weeks 3 and 4 built demand, supply, and the market equilibrium, and Week 5 measured how strongly buyers respond to price.
This week: willingness to pay and willingness to sell; consumer, producer, and total surplus, first on a ladder and then as areas; allocative efficiency; and efficiency versus equity.
How they connect: this week puts a dollar figure on Week 2's "both sides gain," and it reads the gains straight off Week 4's demand and supply curves.
Where we're going next: Week 7 uses this week's triangles to measure what a price ceiling, a price floor, a tax, or a subsidy does to a market, so this week builds the measuring tool.

Week 4 is the chapter this one leans on most. Recall its running market: demand Qd = 90 − 10P and supply Qs = 10P − 30, where P is the price in dollars and quantities are in units per day. The two curves cross at an equilibrium price of 6 dollars and an equilibrium quantity of 30 units a day. Week 1 matters here too. A positive statement is a claim evidence could check. A normative statement is a claim about what ought to be, resting on values. Keep both definitions close, because the last two sections of this chapter depend on them.

1. Name the two limits: willingness to pay and willingness to sell

Every trade has two limits, one on each side. On your side is the most you would pay before you would rather keep your money. On the seller's side is the least they would take before they would rather keep the good. The price has to land between the two, or one side walks away.

You already reason this way. A student shopping for a used laptop decides that 300 dollars is the most it is worth to her. A neighbor fixing up old furniture knows he will not sell a dresser for less than what the wood and his weekend cost him. Those two numbers have names.

Willingness to pay is the most a buyer would pay for one unit of a good; on a demand curve, the height of the curve above that unit shows it.
Willingness to sell is the least a seller would accept for one unit of a good, which is the seller's cost of providing it; on a supply curve, the height of the curve above that unit shows it.

"Cost" here means opportunity cost from Week 1. A seller's cost includes the value of what the seller gives up, not only the cash paid out. If you could sell your old bicycle for parts tomorrow, that option is part of what it costs you to sell it today.

A trade can help both sides only when the price sits between the two limits. If a buyer would pay up to 80 dollars and a seller would accept 30, any price from 30 to 80 leaves both no worse off, and any price strictly between them leaves both ahead.

An honesty note about these numbers: nobody wears a sign showing their willingness to pay. Economists infer it from what people do, such as which prices they accept and which they refuse. The model treats it as a known number so that the logic is easy to see.

Misconception check. Students often think a seller's willingness to sell is the price the seller hopes to get. It is the opposite end: the least the seller would accept, which is the seller's cost. The cure: ask "below what price would this seller walk away?" That number is the willingness to sell.

2. Read the ladder: who trades at a price of 60

A ladder lines up a market's buyers from the highest value down and its sellers from the lowest cost up. It is a small, countable market, and it lets you see each trade.

The used-bicycle market below is illustrative, constructed for this course. Five people would each like to buy one used bicycle, and five people each have one to sell.

Used-bicycle ladder: each buyer's willingness to pay and each seller's cost, in dollars per bicycle (illustrative)
	First	Second	Third	Fourth	Fifth
Buyer's willingness to pay	100	80	70	50	30
Seller's cost	20	30	50	70	90

Read the top row from left to right and the values fall. Read the bottom row and the costs rise. Those are the demand side and the supply side of the ladder.

Worked example — who trades when bicycles sell for 60 dollars. Check each buyer, then each seller, against the price.

Buyers. A buyer buys only if the bicycle is worth at least the price. The values 100, 80, and 70 are at or above 60, and 50 and 30 are below it. Three buyers buy.
Sellers. A seller sells only if the price covers the seller's cost. The costs 20, 30, and 50 are at or below 60, and 70 and 90 are above it. Three sellers sell.
The count. Three buyers want a bicycle and three sellers offer one, so 3 bicycles sell.

In words: at 60 dollars, the three buyers who value a bicycle at 60 or more buy from the three sellers whose cost is 60 or less, so three bicycles change hands and nobody is left waiting. The fourth buyer, at 50, and the fourth seller, at 70, both sit out by choice.

Misconception check. Students often think the buyer with the 50-dollar value "lost out" at a price of 60. That buyer chose not to buy, because the bicycle is worth less to him than 60 dollars. The cure: a buyer who sits out has a surplus of zero, not a loss. Nobody is made to trade.

3. Add up the gains: consumer, producer, and total surplus

Each buyer who trades gets a gain: the bicycle was worth more than the price. Each seller who trades gets a gain too: the price was more than the cost. Adding up those gains, one person at a time, tells you how much better off the market made everyone.

Consumer surplus is the gain buyers get from a market: each buyer's willingness to pay minus the price actually paid, added up over the units bought. On a diagram it is the area below the demand curve and above the price.
Producer surplus is the gain sellers get from a market: the price received minus each seller's cost, added up over the units sold. On a diagram it is the area above the supply curve and below the price.
Total surplus is consumer surplus plus producer surplus: the whole gain that buyers and sellers together get from the trades in a market, measured in dollars.

Worked example — the ladder's three gains at 60 dollars. Use the three buyers and three sellers who trade.

Consumer surplus. (100 − 60) + (80 − 60) + (70 − 60) = 40 + 20 + 10 = 70 dollars.
Producer surplus. (60 − 20) + (60 − 30) + (60 − 50) = 40 + 30 + 10 = 80 dollars.
Total surplus. 70 + 80 = 150 dollars.

In words: the three buyers together are 70 dollars better off than if they had stayed home. The three sellers together are 80 dollars better off than if they had kept their bicycles. The market as a whole created 150 dollars of gains that did not exist before. Nobody printed that money. It is the value of moving three bicycles to people who value them more.

Pause and reflect — choose one. Pick either prompt; they count the same.

(a) Think of a purchase where you came out well ahead. Estimate your own willingness to pay and the price, and say your consumer surplus in one sentence.
(b) Think of something you sold or could sell, such as old gear or an hour of your time. Estimate the least you would accept and a likely price, and say your producer surplus in one sentence.

Misconception check. Students often swap the two surpluses, writing "price minus value" for buyers. The cure: say whose gain it is. A buyer gains when the value is above the price, so consumer surplus is value minus price. A seller gains when the price is above the cost, so producer surplus is price minus cost. Each surplus is a gain, so neither one is ever negative for a person who chose to trade.

4. Find the efficient number of trades

Now forget the price for a moment and ask a different question. If you could choose which bicycles changed hands, how many trades would make the biggest total gain?

The approach is to pair the buyer who values a bicycle most with the seller whose cost is lowest, then the next buyer with the next seller, and so on. Each pair's gain is the value minus the cost.

Worked example — pairing the ladder. Match the buyers and sellers in order, highest value with lowest cost.

First pair. 100 − 20 = 80 dollars.
Second pair. 80 − 30 = 50 dollars.
Third pair. 70 − 50 = 20 dollars.
Fourth pair. 50 − 70 = −20 dollars.
Fifth pair. 30 − 90 = −60 dollars.
The best count. The first three gains are positive and the fourth is negative, so 3 trades is efficient, and 80 + 50 + 20 = 150 dollars.
Adding a fourth trade. 150 + (−20) = 130 dollars, so the fourth trade lowers total surplus by 20 dollars.

In words: the fourth trade would move a bicycle worth 50 dollars to its buyer away from a seller who values it at 70, and that destroys 20 dollars of value. The best the market can do is three trades and 150 dollars of total surplus.

The efficient number of trades is the number of trades that makes total surplus as large as possible: every trade whose buyer values the unit more than it costs its seller happens, and no trade that costs more than it is worth happens.

Here is the striking part. Nobody organized the bicycle market. Each buyer and seller looked only at the price of 60 dollars and their own number. Yet the market found exactly three trades, and its total surplus of 150 dollars matches the best pairing, 150 dollars. The price did the sorting: it let in every buyer whose value is high enough and every seller whose cost is low enough, and it kept everyone else out.

Misconception check. Students often think "more trades is always better," so five trades must beat three. The cure: look at the sign of each pair's gain. The fourth and fifth pairs have negative gains, so making them trade moves bicycles to people who value them less than their owners do. Efficiency means the right number of trades, not the most.

5. Read the curves as values and costs

The ladder had five buyers and five sellers. The course's running market has many more, so instead of a table of people you read the curves. A demand curve, read up from any quantity, tells you what that unit is worth to the buyer who buys it. A supply curve, read up from any quantity, tells you what that unit costs the seller who sells it.

To read them that way, write each curve with the price on the left. Demand Qd = 90 − 10P becomes P = 9 − Q ⁄ 10, and supply Qs = 10P − 30 becomes P = 3 + Q ⁄ 10. Here Q is the number of units counted from the left of the diagram.

Worked example — the 10th unit. Put Q = 10 into each curve.

Its value to a buyer. P = 9 − 10 ⁄ 10 = 9 − 1 = 8 dollars.
Its cost to a seller. P = 3 + 10 ⁄ 10 = 3 + 1 = 4 dollars.

In words: some buyer in this market values the 10th unit at 8 dollars, and some seller can provide it for 4 dollars, so that one unit could create 8 − 4 = 4 dollars of gain.

Picture the diagram this describes. Price runs up the vertical axis and quantity runs along the horizontal axis. The demand curve starts high on the left, at 9 dollars when the quantity is zero, and falls to the right. The supply curve starts lower on the left, at 3 dollars, and rises to the right. The two lines cross at 30 units and 6 dollars. Every unit to the left of 30 has its demand height above its supply height.

In practice (your tools). In Desmos, quantity goes on the x-axis and price on the y-axis. Type y = 9 - x/10 and y = 3 + x/10. Click the demand line at x = 10 and Desmos shows (10, 8); click the supply line at x = 10 and it shows (10, 4). The vertical gap between the two dots is that unit's gain.

Misconception check. Students often read the demand curve only as "how many at this price" and miss that it also says "how much is this unit worth." Both readings describe the same line. The cure: start from a quantity and go up to the curve. The height you reach is the value of that unit to its buyer on demand, and its cost to its seller on supply.

6. Measure the triangles: surplus on the running market

On the ladder you added gains one person at a time. With a straight-line curve and many units, those little gains pile up into a shape, and the shape is a triangle. The area of a triangle is one half times its base times its height.

At the running market's equilibrium price of 6 dollars and quantity of 30 units a day, the two surplus areas sit on either side of the price line.

Consumer surplus is the triangle below demand and above the price. Its corners are at a price of 9 on the vertical axis, a price of 6 on the vertical axis, and the crossing point at 30 units and 6 dollars.
Producer surplus is the triangle above supply and below the price. Its corners are at a price of 6 on the vertical axis, a price of 3 on the vertical axis, and the same crossing point.

Worked example — the running market's surplus at equilibrium. Use the price of 6 dollars and the quantity of 30 units.

Check the equilibrium. 90 − 10 × 6 = 30 and 10 × 6 − 30 = 30, so the price is 6 dollars and the quantity is 30 units per day.
Consumer surplus. 1⁄2 × 30 × (9 − 6) = 1⁄2 × 30 × 3 = 45 dollars per day.
Producer surplus. 1⁄2 × 30 × (6 − 3) = 1⁄2 × 30 × 3 = 45 dollars per day.
Total surplus. 45 + 45 = 90 dollars per day, which is also the triangle between the two curves, 1⁄2 × 30 × (9 − 3) = 90.

In words: each day, buyers in this market get 45 dollars of value beyond what they pay, sellers get 45 dollars beyond their costs, and the market creates 90 dollars of gains in all. The two triangles happen to be the same size here only because the two lines are equally steep; on other markets they differ, as they did on the ladder.

In practice (your tools). In Desmos, with both lines from Section 5 on screen, type polygon((0,9),(0,6),(30,6)) and Desmos shades the consumer-surplus triangle. Type polygon((0,6),(0,3),(30,6)) for the producer-surplus triangle. In Google Sheets, type =0.5*30*(9-6) in one cell and =0.5*30*(6-3) in the next; each shows 45.

A caveat about this picture: real demand and supply curves are rarely perfect straight lines. The straight lines are a classroom model that makes the areas easy to compute. The idea, that surplus is the area between a curve and the price, carries over to curves of any shape.

Misconception check — the rectangle. Students often compute consumer surplus as 30 × (9 − 6) = 90, the full rectangle. That rectangle is twice the triangle of 45. The cure: picture the gains unit by unit. The first unit's buyer gains almost 3 dollars and the 30th unit's buyer gains almost nothing, so the gains shrink from left to right and fill only half the rectangle.

Misconception check — two meanings of surplus. Students often mix up consumer surplus with the surplus of Week 4. Week 4's surplus was a pile of unsold units at a price above equilibrium. Consumer surplus is a dollar gain to buyers at any price where they trade. The cure: when you write "surplus" this week, say whose surplus it is.

7. See why the equilibrium is efficient

The bicycle market found its efficient number of trades. The running market does the same thing on a larger scale. To see it, compare each unit's value to its buyer with its cost to its seller.

Worked example — units on either side of 30. Read one unit below the equilibrium quantity and one above it.

The 20th unit. Buyers value it at 9 − 20 ⁄ 10 = 7 dollars and it costs sellers 3 + 20 ⁄ 10 = 5 dollars, a gain of 7 − 5 = 2 dollars.
The 40th unit. Buyers value it at 9 − 40 ⁄ 10 = 5 dollars and it costs sellers 3 + 40 ⁄ 10 = 7 dollars, a loss of 7 − 5 = 2 dollars.
Stopping at 20 units. The area between the curves from 0 to 20 is a trapezoid, 1⁄2 × (6 + 2) × 20 = 80 dollars per day, which is 90 − 80 = 10 less than at 30 units.
Pushing to 40 units. The 10 extra units past 30 add a triangle of losses, 1⁄2 × 10 × 2 = 10, so total surplus is 90 − 10 = 80 dollars per day.

In words: every unit up to the 30th is worth more to a buyer than it costs a seller, so leaving any of them untraded throws away a gain. Every unit past the 30th costs more than it is worth, so trading it destroys value. Thirty units is the quantity that makes total surplus as large as it can be, 90 dollars a day, and that is exactly the quantity the market reaches on its own.

Allocative efficiency is an outcome in which goods are produced and traded up to the point where total surplus is as large as it can be; in the competitive model, the equilibrium quantity reaches it. It is a positive property of the model, not a judgment about fairness.

Think about what this means for a city bus system that runs extra late-night routes. If a route costs more to run than its riders value it, adding it lowers total surplus; if riders value it more than it costs, cutting it lowers total surplus. The same comparison of value and cost decides every unit.

A limitation to state plainly: the efficiency result holds under the model's assumptions. It assumes a competitive market, buyers and sellers who know what they are trading, and no costs or benefits falling on people outside the trade. Later weeks test each assumption, so treat "the market is efficient" as a result about this model, not about every market you will ever see.

Misconception check. Students often think the equilibrium is efficient because every buyer is happy. Plenty of buyers sit out, and the ones who buy at a high value gain more than the ones near the price. The cure: efficiency is about the total. The market trades every unit worth more than it costs and none worth less, so no other quantity adds up to more.

8. Keep efficiency and equity apart

The bicycle market produced 150 dollars of total surplus, split 70 to buyers and 80 to sellers. The running market produced 90 dollars a day, split 45 and 45. Two questions are hiding in those numbers, and they are not the same question.

Equity is fairness in how the gains from a market are divided among buyers, sellers, and others; judging equity rests on values, so it is a normative question rather than a result the model can prove.

The first question is about size: is the total gain as large as it can be? That is a positive question. The model answers it with arithmetic you can check, as you did in Section 7.

The second question is about the split: is it fair that sellers got 80 and buyers got 70, or that some buyers sat out at a price of 60? That is a normative question. People who share every number on the ladder can still disagree about it, because the answer depends on what they value.

Worked example — labeling three claims about the ladder. Ask of each claim whether evidence could check it.

"At a price of 60, three bicycles sell and total surplus is 150 dollars." Positive: the ladder's numbers check it.
"No other number of trades gives more than 150 dollars of total surplus." Positive: the pairing in Section 4 checks it.
"The buyer who values a bicycle at 50 dollars deserves one too." Normative: it rests on a view about who should get what, and no number on the ladder can settle it.

In words: the model can tell you the market made the biggest gain it could and exactly how that gain was split. It cannot tell you whether the split is fair, and an economist who says "the market is efficient, so the outcome is good" has slipped a value judgment in after the word "so."

Pause and reflect — choose one. Pick either prompt; they count the same.

(a) Write one positive sentence and one normative sentence about the same market you know well, such as concert tickets, rideshares, or rent. Label each.
(b) Think of a market where people argue about fairness. In two sentences, say what a positive measure of its efficiency would count and what the fairness argument is about.

Misconception check. Students often read "efficient" as "fair" or "good." In economics, efficient means total surplus is as large as it can be, and nothing more. The cure: when you hear "efficient," ask "bigger or fairer?" Efficiency answers "bigger." Fairness is a separate, normative question.

9. Check the classic wrong turns

Most mistakes this week are not deep confusions. They are a swapped label, a missing one half, or a value judgment that sneaks into a model result. A short routine catches all three.

Step one: say whose gain it is. Buyers gain value minus price, and sellers gain price minus cost.
Step two: find the shape. With straight lines, each surplus is a triangle, so multiply by one half.
Step three: separate size from split. Total surplus and efficiency are positive claims; whether the split is fair is normative.

Worked example — checking a classmate's work on the running market. A classmate writes: "Producer surplus is the area below demand and above the price, 30 × 3 = 90, so the market is efficient and therefore fair."

The label. The area below demand and above the price is consumer surplus, not producer surplus. Producer surplus is above supply and below the price.
The shape. 30 × 3 = 90 is the rectangle. The triangle is 1⁄2 × 30 × 3 = 45 dollars per day.
The leap. "Efficient" is a positive result; "fair" is a normative judgment, and the model does not supply it.

In words: the corrected statement is "consumer surplus is 45 dollars a day, producer surplus is also 45, total surplus is 90, and the equilibrium is efficient in the model; whether its split is fair is a separate question."

Misconception check. Students often think a buyer with zero consumer surplus did not trade. The buyer of the very last unit traded at a price equal to her value, so her gain is zero, but she still bought it. The cure: surplus measures the gain from a trade, not whether the trade happened.

Key terms

Willingness to pay — The most a buyer would pay for one unit of a good; on a demand curve, the height of the curve above that unit shows it. (first used: 1. Name the two limits: willingness to pay and willingness to sell)
Willingness to sell — The least a seller would accept for one unit of a good, which is the seller's cost of providing it; on a supply curve, the height of the curve above that unit shows it. (first used: 1. Name the two limits: willingness to pay and willingness to sell)
Consumer surplus — The gain buyers get from a market: each buyer's willingness to pay minus the price actually paid, added up over the units bought, shown on a diagram as the area below the demand curve and above the price. (first used: 3. Add up the gains: consumer, producer, and total surplus)
Producer surplus — The gain sellers get from a market: the price received minus each seller's cost, added up over the units sold, shown on a diagram as the area above the supply curve and below the price. (first used: 3. Add up the gains: consumer, producer, and total surplus)
Total surplus — Consumer surplus plus producer surplus: the whole gain that buyers and sellers together get from the trades in a market, measured in dollars. (first used: 3. Add up the gains: consumer, producer, and total surplus)
Efficient number of trades — The number of trades that makes total surplus as large as possible: every trade whose buyer values the unit more than it costs its seller happens, and no trade that costs more than it is worth happens. (first used: 4. Find the efficient number of trades)
Allocative efficiency — An outcome in which goods are produced and traded up to the point where total surplus is as large as it can be; in the competitive model, the equilibrium quantity reaches it, and it is a positive property, not a judgment about fairness. (first used: 7. See why the equilibrium is efficient)
Equity — Fairness in how the gains from a market are divided among buyers, sellers, and others; judging it rests on values, so it is a normative question rather than a result the model can prove. (first used: 8. Keep efficiency and equity apart)

Summary

Willingness to pay is a buyer's top price; willingness to sell is a seller's cost.
A trade helps both sides when the price sits between those two limits.
Consumer surplus is value minus price, added over the units bought.
Producer surplus is price minus cost, added over the units sold.
Total surplus is consumer surplus plus producer surplus.
With straight lines, each surplus is a triangle: one half times base times height.
The efficient number of trades includes every trade worth more than it costs.
In the model, the competitive equilibrium quantity makes total surplus as large as it can be.
Efficiency is about the size of the gain; equity is about its split, a normative question.

Check your understanding

Work these before looking at the answers — they are ungraded, and the answers (with reasoning) are at the bottom of the page.

Resale tickets for a playoff game (an illustrative case): four fans would pay 95, 75, 50, and 40 dollars, and four ticket holders would sell for no less than 30, 45, 60, and 85 dollars. At a price of 55 dollars, find how many tickets sell, the consumer surplus, the producer surplus, and the total surplus.
For the same four fans and four ticket holders, find the efficient number of trades by pairing values with costs, and say whether the market at 55 dollars reaches it.
An illustrative weekend market for basil plants has demand P = 20 − Q ⁄ 2 and supply P = 2 + Q ⁄ 4, with P in dollars and Q in plants. Its equilibrium is 24 plants at 8 dollars. Compute consumer surplus and producer surplus, and describe in words where each triangle sits on the diagram.
In the basil market, compare the 20th plant and the 28th plant: compute each one's value to its buyer and cost to its seller, and say which one belongs in the efficient quantity. Then label this claim positive or normative: "Basil growers earn too little of the market's gain."

Answers (worked reasoning — read after attempting)

Fans at or above 55: the ones at 95 and 75, so two buy. Ticket holders at or below 55: the ones at 30 and 45, so two sell, and 2 tickets sell. Consumer surplus = (95 − 55) + (75 − 55) = 40 + 20 = 60 dollars. Producer surplus = (55 − 30) + (55 − 45) = 25 + 10 = 35 dollars. Total surplus = 60 + 35 = 95 dollars. The two buyers gained 60 dollars together and the two sellers 35, so the trades created 95 dollars of value.
The pairs' gains are 95 − 30 = 65, 75 − 45 = 30, 50 − 60 = −10, and 40 − 85 = −45 dollars. Only the first two are positive, so 2 trades is efficient, with 65 + 30 = 95 dollars of total surplus. The market at 55 dollars made exactly 2 trades and 95 dollars, so it reaches the efficient number. A third trade would destroy 10 dollars.
Consumer surplus = 1⁄2 × 24 × (20 − 8) = 1⁄2 × 24 × 12 = 144 dollars. Producer surplus = 1⁄2 × 24 × (8 − 2) = 1⁄2 × 24 × 6 = 72 dollars. The consumer-surplus triangle sits below the demand line and above the 8-dollar price line, from a price of 20 on the vertical axis out to 24 plants. The producer-surplus triangle sits above the supply line and below the 8-dollar line, from a price of 2 on the vertical axis out to 24 plants. Here buyers gain twice what sellers gain, because demand is steeper than supply.
The 20th plant: value 20 − 20 ⁄ 2 = 10 dollars, cost 2 + 20 ⁄ 4 = 7 dollars, a gain of 3 dollars, so it belongs in the efficient quantity. The 28th plant: value 20 − 28 ⁄ 2 = 6 dollars, cost 2 + 28 ⁄ 4 = 9 dollars, a loss of 3 dollars, so it does not. The claim about growers is normative: "too little" rests on a view of what a fair split is, and the 144-to-72 numbers alone cannot settle it.

Next up in this module: the Readings & Resources page, the lecture tutorial, the practice set, and the quiz — and next week the triangles become the measuring tool for price ceilings, price floors, and taxes, the model's first government interventions.

Built with The Course Maker · samples.thecoursemaker.com