• Consumer’s and Producer’s

Surplus

• Elasticity of Demand and Supply

1
 Consumer’s and Producer’s Surplus

Consumers’ Surplus =
What consumer is willing to pay- What consumer is actually
paying

Producers’ Surplus =
Amount that producers are paid for a product - Total variable
cost of producing the product

2
 Cont’d…
Consumer’s and Producer’s Surplus

Consumer’s Surplus
P

100

Producer’s
75
Surplus

D
25

0
50
Q

3
Elasticity of Demand and Supply

Elasticity is a measure of responsiveness .

It is used to measure the magnitude of

consumers’ responsiveness to price changes .

It can also be used to measure consumer

responsiveness to:
*income changes
*changes in the price of related products, and *sellers’
responses to price changes.

4
The Price Elasticity of Demand

The price elasticity of demand is a measure

of the responsiveness of demand to changes in
the commodity’s own price.

It is the percentage change in the quantity

demanded of a product that results in from a
1% change in the price of that product (ceteris
paribus).

5
 Percentage change in quantity
demanded of product
Edx =
Percentage change in price of
product X

6
Point Elasticity
The point elasticity of demand is defined as the
proportionate change in the quantity demanded, resulting
from a very small proportionate change in price.

Q P
Ed  *
P Q