Economic surplus
Measure of consumer and producer benefit from market exchange.
Last updated
Economic surplus is the sum of consumer surplus and producer surplus, also called total welfare or social surplus.[1] Consumer surplus is the gain consumers get when they pay less than the maximum price they would accept.[1] Producer surplus is the gain producers get when they sell at a price above their minimum acceptable price.[1]
Quick Facts
- Concept originator
- Jules Dupuit (mid-19th century)
- Popularizer
- Alfred Marshall
- Field
- Mainstream economics
- Key quantities
- Consumer surplus
- producer surplus
- social surplus
- deadweight loss
Facts from the source article.
Key facts and history
A broad interpretation of what constitutes necessities was employed by William Petty, which caused his analysis of surplus to concentrate on matters of employment.[2] A different perspective on the concept of agricultural surplus was taken by David Hume.[2] Hume acknowledged that farming could support a population larger than the number of farmers, but he raised the issue of what motivation farmers would have to generate output exceeding their own requirements.[2] Hume contended that farmers would be motivated to create and sell a surplus if they had the opportunity to purchase luxury goods.[2]
The development seen in Europe was attributed by Smith to landlords prioritizing expenditure on luxury items over the pursuit of political influence.[2]
What the cited sources add
A guide from Aron Groups states that consumer and producer surplus serve as a key measure of how efficiently a market allocates its resources.[3] The same guide notes that government actions such as taxes, subsidies, and price controls can create deadweight loss.[3] A Microeconomics guide explains that producer surplus aggregates all producer profits generated by selling a particular product at market price.[4] That guide also states that at equilibrium, both consumer surplus and manufacturer surplus are equal.[4]
The Aron Groups guide warns that when surplus is distributed unequally, it can lead to economic inequality even if the market appears more efficient.[3] According to a resource from a learning platform, the total surplus for society is greatest at the equilibrium price and quantity compared to any other point.[5] That same resource states that at an efficient output level, one cannot increase consumer surplus without decreasing producer surplus, and vice versa.[5]
References
- Wikipedia, "Economic surplus" (CC BY-SA 4.0), which cites: Boulding, "The Concept of Economic Surplus", The American Economic Review, 1945, p. 851–869; "Consumer and producer surplus Microeconomics Khan Academy", Khan Academy; "Economic efficiency (article)", Khan Academy (original not read by us) en.wikipedia.org
- Wikipedia, "Economic surplus" (CC BY-SA 4.0), which cites: Brewer A. (2008) Surplus. In: Palgrave Macmillan (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-9 (original not read by us) en.wikipedia.org
- "A Guide to Consumer and Producer Surplus Economics Made Simple", Aron Groups, 2647-01-13. facts only, no text reused. arongroups.co
- "Producer Surplus - Definition, Formula, Calculate, Graph, Example", 2022-10-11. facts only, no text reused. wallstreetmojo.com
- "Consumer & Producer Surplus Microeconomics", courses.lumenlearning.com. facts only, no text reused. courses.lumenlearning.com
Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Economic surplus (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.
More in Economic Concepts & Models
Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Economic surplus (CC BY-SA 4.0).
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