The total welfare to the overall economy can be measured by summing up the benefits to both consumers and suppliers in the above model.
Consumer surplus (CS) – represented by Triangle ‘bEp’; it denotes the amount that consumers were willing to pay but end up ‘saving’ after paying a lower price. The demand curve shows that the consumer was prepared to pay anything along the demand curve and by paying the equilibrium price, they ‘gained back’ what they had already given up which was above the equilibrium price but within the boundaries of the Demand Curve.
Producer surplus (PS) – represented by Triangle ‘aEp’; it denotes the amount that producers were willing to sell at but ended up gaining more after selling at an even higher price than initially targeted. The supply curve shows that the producer was prepared to sell along the supply curve and by getting the equilibrium price, they ‘gained more’ than what they had already given up which is below the market price but above the Supply Curve.
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