what is market surplus
Market surplus is excess supply on the market, or a "glut".
An example would be the present supply of houses for sale in Las Vegas and many other areas of the USA.
Market surplus, also known as economic surplus, is a measure of economic welfare that quantifies the difference between the market price of a good or service and its cost of production. It represents the benefit or value that consumers receive when they are able and willing to pay a price lower than what they perceive the good or service to be worth.
To understand market surplus, we need to examine the concept of consumer surplus and producer surplus. Consumer surplus is the difference between what a consumer is willing to pay for a product and what they actually pay. Producer surplus, on the other hand, is the difference between the price at which the producer is willing to supply a product and the price they actually receive.
The market surplus is the combination of the consumer surplus and producer surplus. It represents the collective value gained by both consumers and producers in a market transaction. It is also an indicator of the overall efficiency and allocation of resources in the market.
To calculate the market surplus, you need to follow these steps:
1. Determine the supply and demand curves for the product in question. The supply curve shows the quantity of the product that producers are willing to supply at different prices, while the demand curve shows the quantity that consumers are willing to buy at different prices.
2. Find the equilibrium price, where the quantity demanded equals the quantity supplied. This price represents the market-clearing price.
3. Calculate the consumer surplus by finding the area under the demand curve and above the equilibrium price. This represents the value that consumers receive by paying less than their maximum willingness-to-pay.
4. Calculate the producer surplus by finding the area above the supply curve and below the equilibrium price. This represents the extra profit or benefit that producers receive by selling goods at a price higher than their minimum willingness-to-sell.
5. Finally, sum up the consumer surplus and producer surplus to obtain the market surplus.
Market surplus is an important concept in economics as it provides insights into the efficiency and welfare implications of market transactions. It indicates the level of satisfaction that consumers and producers derive from participating in a market and the overall social benefit of such exchanges.