AS Markets & Market SystemsProducer Surplus |
Producer surplus relates to the welfare that businesses can achieve by supplying products to the market. Defining producer surplus Producer surplus is a measure of producer welfare. It is measured as the difference between what producers are willing and able to supply a good for and the price they actually receive. The level of producer surplus is shown by the area above the supply curve and below the market price and is illustrated in this diagram.
Producer surplus and changes in demand and supply We first consider the effects of a change in market supply – for example caused by an improvement in production technology or a fall in the cost of raw materials and components used in the production of a good or service.
We now consider the effects on producer surplus of a rise in market demand:
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| Author: Geoff Riley, Eton College, September 2006 |
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