Producer surplus is a measure of producer welfare. It is the difference between the amount the producer is willing to supply goods for ( which is usually lower ) and the actual amount received by him when he makes the trade.
The difference or surplus amount is the benefit the producer receives for selling the good in the market.
Formula to calculate producer surplus.
Example:
A shoe making company is willing to sell a pair of shoes at Sh. 3,200. A politician visited the company and bought the same pair of shoes at Sh. 4,000. Calculate the producer surplus.
Therefore, the producer surplus was Sh. 800.
Formula to calculate the producer surplus from a supply curve.
Producer surplus is the area above the supply curve and below the equilibrium price.
The area above the supply curve but below the equilibrium price is a triangle. So to determine producer surplus, we find the area of the triangle.
Example:
Determine the producer surplus from the supply curve below.
Therefore, the producer surplus is Sh. 2000.
