Graph illustrating consumer (red) and producer (blue) surpluses on a supply and demand chart
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- This page deals with the various forms of economic surplus, including producer, consumer, government, and social/total surplus. For information about a budget surplus, see budget deficit.
The term surplus is used in economics for several related quantities. The consumer surplus is the amount that consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay. The producer surplus is the amount that producers benefit by selling at a market price that is higher than they would be willing to sell for. Note that producer surplus flows through to the owners of the factors of production, unlike economic profit which is zero under perfect competition. If the markets for factors are perfectly competitive as well, producer surplus ultimately ends up as economic rent to the owners of scarce inputs such as land.
On a standard supply and demand diagram, consumer surplus shows up as a triangle above the price and below the demand curve, since intramarginal consumers are paying less for the item than the maximum that they would pay.
Producer surplus shows up as a triangle below the price and above the supply curve, since that is the minimum that a producer can produce that quantity with.
If the government intervenes, using, for example, a tax or a subsidy, then the graph of supply and demand becomes more complicated and will also include an area that represents government surplus.
Combined, the consumer surplus, the producer surplus, and the government surplus (if present) make up the social surplus or the total surplus. Total surplus is the primary measure used in Welfare Economics to evaluate the efficiency of a proposed policy.
A basic technique of bargaining for both parties is to pretend that their surplus is less than it really is: sellers may argue that the price they asks hardly leaves them any profit, while customers may play down how eager they are to have the article.
In national accounts, operating surplus is roughly equal to distributed and undistributed pre-tax profit income, net of depreciation.
In heterodox economics, the economic surplus denotes the total income which the ruling class derives from its ownership of scarce factors of production, which is either reinvested or spent on consumption.
In Marxian economics, the term surplus may also refer to surplus value and surplus labour.
See also
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