Difference Between Consumer Surplus and Producer Surplus

Introduced by Mr. Paul Baran, economics surplus, also referred to as welfare surplus is an essential concept in economics. It covers both consumer surplus as well as producer surplus, which can be represented on the demand and supply curve. There exist major differences between consumer surplus and producer surplus in economics, as illustrated below. 

What is Consumer Surplus?

This is the variance between the price at which a consumer is content to pay and the market price at equilibrium. Consumer surplus is positive when the market price is less than what the consumer is content to pay. It is a measure of the welfare consumers receive from consuming a certain good or service.

The elasticity of a demand curve affects consumer surplus in various ways;

• Perfectly elastic demand for goods and services has the consumer surplus at zero. This is because the price that the consumers are willing to pay matches with what they actually pay
• A perfectly inelastic demand has an infinite consumer surplus. This is because the demand does not change with changes in prices.
• An inelastic demand leads to producer surplus whereby consumers are paying more than the market price. Most business often takes advantage of such scenarios and raises prices.

What is Producer Surplus?

This is the difference between the highest price that a consumer is content to pay for a product and the market price. It is a measure of the welfare producers receive from producing certain good or service.

Similarities between Consumer Surplus and Producer Surplus

• Both have a negative effect on the prices
• Both represent welfares of the individual parties

Differences between Consumer Surplus and Producer Surplus

Definition

Consumer surplus is the variance between the price at which a consumer is content to pay and the market price at equilibrium. On the other hand, producer surplus is the difference between the highest price that a consumer is content to pay for a product and the market price.

Welfare

Consumer surplus is a measure of the welfare consumers receive from consuming a certain good or service. On the other hand, producer surplus is a measure of the welfare producers receive from producing certain good or service.

Consumer Surplus vs. Producer Surplus: Comparison Table

Summary of Consumer Surplus vs. Producer Surplus

The importance of the demand and supply curve in economics cannot be ignored. While Consumer surplus is the variance between the price at which a consumer is content to part with and the market price at equilibrium, producer surplus is the difference between the highest price that a consumer is content to pay for a product and the market price. These two represent the equilibrium point which helps in the determination of the balance between demand and supply.

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