Consumer and Producer Surplus- Micro Topic 2.6 (Holiday Edition)

Hey, I'm Jacob Clifford, welcome

to ACDC Econ. Well, it's the

holidays, a great time to drink

hot chocolate, learn about consumer

surplus, producer surplus, and deadweight loss,

then go outside and play in the snow.
Oh!

Deck the Halls (Instrumental) by Jingle Punks

Okay here we go. Let's look

at the market for santa hats.

The demand basically shows a number of people

who are willing to buy hats at different prices.

If the price is high then less people

want to buy hats, and if the price

is low then more people want to buy them.

The supply shows the number of producers

that are willing to make hats.

If the price is low, then very few producers want

to make them. If the price is high,

then more producers want to

make more hats.

Supply and demand come together

and set the equilibrium price and quantity.

Let's say five dollars and four thousand hats.

[Children] Five dollars and four thousand hats.

[Clifford] Now the demand curve

shows that someone out there is

willing to pay eight dollars. They didn't,

they paid five dollars.

That's called consumer surplus.

It's the difference between what you're willing

to pay for something and what you actually

do pay. The area of combined

consumer surplus is this triangle right here,

but what about the person who's

willing to pay only four dollars?

Well, they don't get it, they

don't value hats enough.

Now, the supply curve shows

that there is a producer with a super

low opportunity cost that's willing to sell

hats for two dollars. But every producer that's

going to sell hats for less than five dollars

makes producer surplus. It's the difference

between the price and what a seller is

going to sell something for.