Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual price paid. Total consumer surplus is the sum of all consumer surpluses gained by all buyers. A price increase reduces consumer surplus by the area between the new and old prices. Producer surplus is the difference between the market price received and the lowest price a seller will accept. A deadweight loss is the reduction in total surplus from a market distortion like a tax, and equals the loss of consumer surplus plus the loss of producer surplus minus any tax revenue gained.

1. DEADWEIGHT LOSS

3. Consumer surplus = the area above the price and below the demand curve 100 Consumer Surplus 0 P = 35 400 35 D

4. Consumer Surplus and a Price Increase 100 0 P = 60 400 35 60 Consumer Surplus 270 D

6. Producer Surplus and The Market Supply P = 60 0 P 270 Producer Surplus 60 10 S

7. Total Surplus 60 100 10 D S Consumer Surplus Producer Surplus 0 270

9. Taxes and Consumer and Producer Surplus A C F B K L D S Loss of consumer surplus: A+B Loss of producer surplus: C+F Tax revenue: A + C Deadweight loss: B +F 0 Q 60 100 10 30 90 270 100