How to Calculate Producer Surplus and Consumer Surplus from Supply and Demand Equations | Think Econ
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- Опубликовано: 10 ноя 2022
- In this video we explain how you can calculate Producer Surplus and Consumer Surplus step-by-step, starting with nothing but the supply and demand equations! We go over an algebraic solution to show you exactly how to calculate consumer and producer surplus given the demand and supply equations!
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#microeconomics #ProducerSurplus #ConsumerSurplus
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You're very welcome! I'm really glad to hear that :)
Liked and Subscribed! Thank you for your help!!!
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Glad to hear it! Good luck on the exam!
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I’m glad you enjoyed the video! :)
God Bless you for this.
To be honest, I didn't have the most recent version of a textbook for my Energy Economics class so I had no examples to go off of. All other tutorials, including CHATGPT did not mention finding the 0 value, 54 value, and made no mention of finding the difference between the 54 and the 18 value and then Basexheight/2. Thank you so much for this. I think I will go get the book because it should not have taken me this long.
I feel like most textbooks don't even go over that in much detail, which is a shame. We take a lot as given and I'm glad I was able to provide a truly step-by-step solution to walk you through it! You got this!
thank you so much, your explanations are so effective and easy to understand sir
Glad to hear that!
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Wow, you make it look easy! Thank you
I’m happy to hear that. You’re very welcome! ☺️
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I’m glad you found it helpful!
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Glad I could help! :)
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Please share video for tax subsidies and quotas on supply n demand curve calculations
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I appreciate the compliment! Glad you found it helpful! :)
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Please calculate consumer surplus and producer surplus using integration
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could you explain the theory behind CS being above market price and below demand function and PS below market price and above supply function?
Absolutely. It has to do with a consumer's willingness to pay and a producer's willingness to sell.
If you're willing to pay $20 for a t-shirt but only have to pay $5, then your consumer surplus is $15 in savings. Now on the supply and demand graph is area would be the triangle below the demand curve and above the equilibrium price of $5. This means that ANYONE with a willingness to pay above $5 receives a benefit, no matter if their willingness to pay was $6 or $600.
On the producer side, imagine you're willing to sell a good as cheap as $10, but equilibrium price is $50. Then your producer surplus is $40. ANY seller whose willingness to sell is under $50 will experience producer surplus. On the graph this is the area below the selling price and above the supply curve.
I hope this helps, if not, let me know and I can try to explain it even more clearly!
Thank you so much! If you don't mind, how do I go about it if my demand and supply functions are different?
If they look like this:
Demand function: P(Q) = 5-0,0000001Q
Supply function: P(Q) = 0,0000001Q
I found the equilibrium price and quantity by putting both functions equal to each other, and then solving. And then the other was found by inputting the new value into one of the original functions just like you did. I got Equilibrium price = 2,5 and quantity = 25000000
My question is, how do I find where the demand function crosses the X and Y axis? There is no P in my function, so I'm a little bit confused.
So what you've got is something called the inverse demand function. Instead of Q on the left side of the equation, it's P. For calculating the X and Y intercepts, you just set P and Q equal to zero one at a time, and solve for the other value.
Does this help?
@@ThinkEcon Oh I see, thank you very much!! So for the demand function, I would basically be able to straight out read the y-intercept from this type of function by looking at the first number, in this case 5 right? Since the other part in the function would always result in 0?
@@peacekeeper-apexlegends9294 yes, that’s exactly correct! In fact, the inverse demand function is already in y = mx + b form, ready to be graphed (like you said). The regular demand equation is actually not what you’re graphing since it interprets the dependent variable (y variable) as Q instead of P. They’re the exact same equations, just rearranged!
@@ThinkEcon Appreciate it thank you, earned a sub! Your content have helped me out so much!
@@peacekeeper-apexlegends9294 I’m glad it’s been helpful, and appreciate the kind words :)
Great content but i noticed that the question i have here is quite different yours; qs= p=2q/3 + 1 and qd= p=10_2q how do i approach this please?
First things first. You’re working with something called the INVERSE demand and supply equations. This is where P is isolated and Q is in the equation instead of the other way around. Luckily for you, solving requires the same steps, so at equilibrium both price AND quantity are equal. In your case, you would set the P equations equal to each other and solve for Q. Once you have Q, sub it back into either the inverse supply or inverse demand equation to get equilibrium P. Does this help?
What is meant by consumer and producer surplus in the market equilibrium graph? Why would you need to use the area of a triangle in order to work out the producer and consumer surplus? Thank you.
The idea is that consumer surplus is all of the value the consumers receive from purchasing something that was cheaper than their "reservation price" or the maximum they're willing to spend on the good. The triangle formed under the demand curve and above the equilibrium price represents that amount. The lower the price, the bigger the triangle, and therefore the bigger the consumer surplus, since consumers save more money.
The exact opposite is true on the supply side. Producers benefit more from a high price, and so as the price goes up, producer surplus increases.
I hope this helps :)
@@ThinkEcon Thank you 😊
ure a god man
Good luck on your exams yall
❤
HI, the 270 and the 10 are random values that the professor has added or it is the actual base formula?
Those are the actual values in this particular example. They will change question to question
I was bemused as to how the figures just materialized. Thanks for clearing this. @@ThinkEcon
My pleasure! Every question's figures will be different, but to show you the math involved, I did need to include values of my own!
@@delealabi1866
How did you get the figures that you used for quantity supplied and quantity demanded
The supply and demand equations, you mean? They’ll always be given to you, or at the very least, be given as a one-step problem
are Qd = 270 -5p and Qs = 10P equations used for every single problem?
Great question! No, each question will have different Qd and Qs equations. They are known as the Demand and Supply Equations and represent the lines you see on a standard Supply and Demand graph! I just used these equations for the example but the steps will work for any Qd and Qs equations
Can the supply curve start from any number apart from 0?
Yes. Remember, as supply curve will often take on the linear form y = mx + b where m is the slope, and b is the y intercept. Any time b is a non-zero integer, the supply curve will start apart from zero!
What about if demand and supply curves are not lines ? If they are quadratic...
Sir, where did you got the number '270' & '5P'? please help
Q = 270 - 5P is the equation for the demand curve. Most of the time the specific demand equation will be given in the question.
How is the base of the producer's supply becoming 80?
Hi Can You Help Me Find The Consumer Surplus At A Price Of $10 Given The Equations Qd=20-P and Qs= P ?
Of course!
P= $10
Equilibrium Q = 10
Find Y-intercept of demand curve:
Set Qd = 0 and solve for P.
0 = 20 - P
P = 20
Therefore y-int is 20.
Calculate area of the Consumer Surplus triangle:
CS = (b*h)/2
CS = (10*10)/2
CS = 100/2
CS = $50
Hope this helps!
@@ThinkEcon Okay. I've Got Another One. Qd=30-P
Qs=2P
Find The Consumer Surplus At A Price Of $15
i don't know who needs to hear this, but chatgpt will help you study and explain math for you
Don’t trust it. Especially if you have variables like Pb*, it doesn’t understand them well and confuses you more. I corrected ChatGPT many times and it ‘apologized’ for its mistakes
It sure does
Inaccurate
✔️@@aaaaaaaaaaaaaaaa7498
@@Makbowmanthat’s amazing it apologises 😂
How did P become 18
It managed to live an additional year after its 17th birthday.
He divided it by 15
you saved my life.
All in a day's work