An overview of my notes on microeconomics.
When the market price of a good exceeds the minimum price for a business to profit, it’s called producer surplus.
Producer surplus = market price - minimum price
When the maximum price a consumer is willing to pay for a good exceeds the market price, it’s called consumer surplus.
Consumer surplus = maximum price - market price
The sum of consumer surplus and producer surplus is used to calculate an economic surplus.
The producer, consumer, and economic surpluses can be calculated as the shaded area of the graph between the demand curve and the supply curve. It’s to the left of the market price.
In a free market, the market price will eventually be the equilibrium point.
When supply and demand reach equilibrium in a free market, it maximizes the economic surplus.
Governments can also apply forces on the market through Market intervention.