3B

The concepts of consumer surplus and producer surplus are extremely useful for analyzing a wide variety of economic issues. They let us calculate how much benefit producers and consumers receive from the existence of a market. They also allow us to calculate how the welfare of consumers and producers is affected by changes in market prices. Such calculations play a crucial role in evaluating many economic policies, and they are especially useful in understanding the effects of trade.

All we need in order to calculate consumer surplus are the demand and supply curves for a good. That is, the supply and demand model isn’t just a model of how a competitive market works—it’s also a model of how much consumers and producers gain from participating in that market. Our starting point for developing the concepts of consumer and producer surplus is the market in used textbooks.