Market equilibrium and consumer and producer surpluses

After you have worked through this section of the learning unit, you should be able to:

  • explain and illustrate with the aid of a diagram why total consumer surplus and total producer surplus is maximised at the market equilibrium point

In the above diagram, the consumer surplus lost at a quantity of 240 is the white triangle (diagram),, while the producer surplus lost is the black triangle (diagram),.

At an equilibrium such as E, it is impossible to further increase the total producer and consumer surplus, and it is therefore the point where the consumer and producer surpluses are maximised.

Do the following activity to see if you understand this section on market equilibrium and consumer and producer surpluses: