Math 135 Section 5.1 Consumer and Producer Surplus
Math 135 Section 5.1 Consumer and Producer Surplus
1-QN
Supply and Demand: The consumer’s demand curve is the graph of the demand function 𝐷(𝑥) that
describes the price per unit, p, that a consumer is willing to buy 𝑥 units of a product. The producer’s supply
curve is the graph of 𝑆(𝑥), which is the price per unit, p, that a producer is willing to accept for selling 𝑥 units
of a product.
I. Consumer’s Surplus
Suppose 𝑝 = 𝐷(𝑥) describes the demand function for a commodity. Then at the point (𝑥0 , 𝑝0 ), the
𝑥
utility or the amount that consumers are willing and able to spend is: ∫0 0 𝐷(𝑥)𝑑𝑥
The consumers’ expenditure is defined by (𝑥0 )(𝑝0), and the consumers’ surplus is defined as:
𝑥0
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Math 135-Section 5.1-QN
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Example 1: Find the consumer’s surplus for 𝐷(𝑥) = (𝑥 − 5) when 𝑥 = 2.
Suppose 𝑝 = 𝑆(𝑥) describes the supply function for a commodity, then at the point (𝑥0 , 𝑝0), the
𝑥
amount that producers are willing and able to receive is defined by: ∫0 0 𝑆(𝑥)𝑑𝑥.
The producers’ revenue is defined by (𝑥0 )(𝑝0), and the producers’ surplus is defined by:
𝑥0
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Math 135-Section 5.1-QN
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Example 2: For the supply function: 𝑝 = 𝑆(𝑥) = 𝑥 + 2𝑥 + 8, determine the producer’s surplus at the
supply level 𝑥 = 3.
a) Find (𝑥0 )(𝑝0), and interpret the result
𝑥
b) Find ∫0 0 𝑆(𝑥)𝑑𝑥 and interpret the result
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Math 135-Section 5.1-QN
Your Turn: Practice!
1. Suppose the demand function is given by 𝑝 = 𝐷(𝑥) = 2𝑥 2 + 3𝑥 − 1,
find the consumer’s surplus when 𝑥 = 3
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Math 135-Section 5.1-QN
Part 2 - In-Class Lesson
Recap:
Given 𝐷(𝑥) = 50𝑒 −0.2𝑥 and 𝑆(𝑥) = 20𝑒 0.05𝑥
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Math 135-Section 5.1-QN
2 2
Example 1 Given 𝐷(𝑥) = (𝑥 − 4) ; 𝑎𝑛𝑑 𝑆(𝑥) = 𝑥 + 2𝑥 + 6
a. Determine the equilibrium point.
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Math 135-Section 5.1-QN
Example 2: The demand and supply curves of a certain brand of sunglasses are given by:
𝑝 = 𝐷(𝑥) = 200 − 0.1𝑥 𝑎𝑛𝑑 𝑝 = 𝑆(𝑥) = 20 + 0.05𝑥, where p is the price in dollars and 𝑥 is the
quantity.
a. Find the equilibrium quantity and price.
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Math 135-Section 5.1-QN
Effects of Taxes and Price Control on Surpluses.
What happen to the demand of a product if consumers must pay more tax?
Example 3: Refer to example 2, suppose a tax of $2.50 will be imposed on the producer for each
pair of sunglasses sold.
a. Determine the new supply function and the new equilibrium quantity and price.