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Math 135 Section 5.1 Consumer and Producer Surplus

The document discusses the concepts of consumer's and producer's surpluses in the context of supply and demand curves. It defines consumer's surplus as the extra utility enjoyed by consumers when prices decrease, while producer's surplus represents the profit for producers. The document includes examples and practice problems to illustrate how to calculate these surpluses and their implications at equilibrium points, as well as the effects of taxes on surpluses.

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33 views

Math 135 Section 5.1 Consumer and Producer Surplus

The document discusses the concepts of consumer's and producer's surpluses in the context of supply and demand curves. It defines consumer's surplus as the extra utility enjoyed by consumers when prices decrease, while producer's surplus represents the profit for producers. The document includes examples and practice problems to illustrate how to calculate these surpluses and their implications at equilibrium points, as well as the effects of taxes on surpluses.

Uploaded by

wjnldckjn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Math 135-Section 5.

1-QN

Chapter 5 Application of integration


Section 5.1 Consumers’ and Producers’ Surpluses
Part 1- Video Lesson

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

∫ 𝐷(𝑥)𝑑𝑥 − (𝑥0 )(𝑝0 )


0
• The consumer’s surplus is the extra utility that consumers enjoy when prices decrease.

1
Math 135-Section 5.1-QN
2
Example 1: Find the consumer’s surplus for 𝐷(𝑥) = (𝑥 − 5) when 𝑥 = 2.

II. Producers’ Surplus

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

(𝑥0 )(𝑝0 ) − ∫ 𝑆(𝑥)𝑑𝑥)


0
The producer’s surplus represents the profit for the producer.

2
Math 135-Section 5.1-QN
2
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

c) Find the producer’s surplus:

3
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

2. Suppose the supply function is given by 𝑝 = 𝑆(𝑥) = (𝑥 − 2)2 ,


find the producer’s surplus when 𝑥 = 6

4
Math 135-Section 5.1-QN
Part 2 - In-Class Lesson
Recap:
Given 𝐷(𝑥) = 50𝑒 −0.2𝑥 and 𝑆(𝑥) = 20𝑒 0.05𝑥

Consumers’ and Producers’ Surpluses at the Equilibrium Point


The equilibrium point,(𝑥𝐸 , 𝑝𝐸 ), is the point at which the supply and demand curves intersect.

5
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.

b. Determine the consumers’ surplus at the equilibrium point.

c. Determine the producers’ surplus at the equilibrium point.

6
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.

b. Determine the producers’ surplus at the equilibrium demand.

c. Determine the consumers’ surplus at the equilibrium demand.

d. Determine the total surplus at the equilibrium demand.

7
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.

b. Determine the producer’s surplus at the new equilibrium point.

c. Determine the consumers’ surplus at the new equilibrium point.

d. Find the total surplus at the new equilibrium point.

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