ECONS 101 – 1st Edition Lecture 8 Outline of Last Lecture I. Change in Quantity Demanded or SuppliedII. Surpluses and ShortagesOutline of Current Lecture I. Consumer & Producer SurplusCurrent LectureSupply and Demand: - Predicting changes in the market before they occur.- Advice on strategy for firms and government.- Work towards ‘affecting’ Supply and Demand.- Welfare Analysis:o Compare different market structures.o Tell policymakers if society is better, worse, or about the same after a policy.Consumer Surplus- The dollar benefit consumers receive from buying goods or services in a particular market.o The difference between the highest prices a consumer is willing-to-pay (WTP) and the price the consumer actually pays.o In other words: the savings from consuming.o Consumer side ~ restricted by income.o Critical to know because it will help BUILD the Demand Curve.- Total consumer surplus in a market is equal to the sum of all the individuals’ consumer surplus.o The total area below the demand curve and above the market price.Producer Surplus:- The dollar benefit firms receive from selling in a particular market.o Profit, difference between revenue and cost.o The difference between the lowest prices a firm would be willing-to-accept (WTA) and the price it actually receives.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. This is typically the cost of making the product, so they can break even.o Depends on the cost of producing it.o Firms will supply an additional unit of a product if they receive a price equal to the additional cost of producing that unit, which is the Marginal Cost. Used to create a Supply Curve.o Producer Surplus is the area of the triangle under the price and above the SupplyCurve.What does Consumer and Producer Surplus Measure?- Each is a net benefit to one side of the market.- Consumer Surplus (CS): benefit to consumers from participating in a market (savings)o CS = WTP – Price - Producer Surplus (PS): benefit to producers from participating in a market (profit)o PS = Price – WTA- Total Surplus (TS  Welfare): the sum of Consumer and Producer Surpluso TS = CS + PSTotal