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Wize University Microeconomics Textbook > Efficiency

Total Surplus

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Total Surplus

  • Total Surplus is consumer surplus plus producer surplus (plus change in government revenue).
  • Efficiency - when resources are allocated in a way that maximizes the total surplus received by all members of society (consumers and producers). This occurs at equilibrium.



Total Surplus=Value to Buyers−Cost to Producers\boxed{\text{Total\ Surplus}=Value\ to\ Buyers-Cost\ to\ Producers}


In the diagram above the total surplus at equilibrium is 15 * (80 - 20) * 1/2 =
$450





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Example: Total Surplus

The demand equation is given by P = 80 - 2Q and supply is P = 20 + 4Q. What is the consumer, producer and total surplus at equilibrium?


Consumer surplus = $100
Producer surplus = $200
Total Surplus = $300

First find equilibrium:
80 - 2Q = 20 + 4Q
60 = 6Q
Q = 10
P = 20 + 4(10) = 60

Consumer surplus = 10 * (80 - 60) * (1/2) = 100
Producer surplus = 10 * (60 - 20) * (1/2) = 200
Total surplus = 100 + 200 = 300