Economics and Statistics

Now that we know the basic principals that affect the market supply and demand curves, we can turn our attention to the welfare analysis of the market and see how the economic value  is divided between the producers and the consumers. Consumer surplus is the difference between the price a consumer is willing to pay and the current market price. The consumer surplus is equal to the area bounded from above by the demand curve and bounded from below by the equilibrium price. Producer Surplus is the difference between the price a producer is willing to sell and the current market price. This is equal to the area bounded from above by the equilibrium market price and bounded from below by the supply curve. Total economic surplus is the sum of consumer and producer surpluses. It is maximized at the equilibrium price and quantity point. Dead-weight loss is the sum producer and consumer surplus that could have been achieved had the equilibrium price and quantity prevailed...