00:01
We've got the supply and demand graph, right? so we got price on one axis and quantity on the other.
00:09
And let's say this is the muffin market.
00:15
So here is our quantity supplied.
00:21
Here is our quantity demanded.
00:25
Okay.
00:26
Now consumer surplus is going to be willingness to pay just make that equals, minus price.
00:35
So what this means is how much buyers are willing to pay for a certain good, and price is the actual price received.
00:43
So let's say we have layla.
00:46
She is willing to pay $7 for a box of muffins, and the actual price, lucky for her, is $4.
00:57
Let's just call that our equilibrium point.
00:59
So let's say 15 muffins for $4 is our equilibrium.
01:06
Well, if we plot layla on this graph, she's willing to pay, what, $7 for that muffin? so her willingness to pay is $7, and the distance between that and the price is $3.
01:26
So that means this area here is always our consumer surplus.
01:34
Surplus is always here.
01:35
Sorry, that got a little messy.
01:38
Consumer surplus.
01:39
It's the area between the demand curve and the equilibrium price.
01:45
Okay.
01:46
So then our producer surplus is going to equal price minus willingness to sell.
01:57
Okay.
01:58
So this is basically the cost.
02:02
Okay, so let's say we have gene.
02:06
The actual price of the muffins is, let's say, $4.
02:13
And her cost is $2.
02:17
So that means her producer surplus is $2.
02:23
So if we plot gene somewhere here, she's willing, like, $2, right? and that means that this area is our producer surplus.
02:39
Okay, so here's maybe this is silly to think about, but i just want to mention it.
02:46
If we really think about plotting these points, right, it's talking about willingness to pay for a certain quantity, right? so if we think about this, this is the current point, willingness, lela's like right here.
02:58
So this is her consumer surplus.
03:00
And if we consider a whole bunch of buyers and their different page, we basically get this area here.
03:06
But it's easier to think of it as this area...