All right this movie is going to go over how to calculate consumer surplus
And what happens if we [have] some common changes in Consumer Surplus?
so first
consumer Surplus is easily calculated by
First drawing our typical graph with price and quantity and then measuring out our demand curve
So in order to calculate consumer Surplus we need this demand curve, and we need some price level
We'll call it P star
And then we need to know what this p upper limit is - because we need these numbers in order to calculate
Consumer surplus
So consumer surplus is the difference between what you're willing to pay
Which is how we construct this demand curve and what you actually have to pay so for each of these
Consumers that are willing to pay a lot more than the actual price they have to [pay]
So it's that area between the demand curve and the price paid that's going to be our consumer surplus
and
As you can see as long as we have linear demand curves consumer Surplus is [going] to be a triangle
So you have to know how to calculate the [area] of a triangle and if you don't I'll [tell] you it's [1/2]
base
Times height
so let's go through an example if we're given a
curve so we have our q and p and
Our demand and our price
so what if price [is] five this upper limit price is 10 and
Our equilibrium quantity is five
Okay, so our formula Says 1/2
Base times height well what's the base here the base goes from 0 to 5?
so our base is 5
What's our height goes from 5 to 10 so our height is also 5 so 5 times 5 is 25?
[1/2] times 25 gives us 12.5. So our consumer Surplus would be equal to
12.5
Now let's switch it up a little bit. What if we change we shift this demand curve
So let's say that it now intersects at 8
and
Price is still at 5. So this is our demand curve before
5
Let's call this 3. This is our demand curve before for some reason it shifts left
And this is our new consumer Surplus
How do we calculate the area of that well it's going to be 1/2 times Base 3
Times Height 3 so our new consumer Surplus is
[going] to be 4.5. So if they ask us to calculate the difference in Consumer Surplus
It's going to be 12 point 5 minus [4] point [5]. What is that going to give us?
8 so really to solve these problems all you have to do is shift that curve know what the values are
Calculate the areas of the triangles and then subtract one from the other to find the difference
you can also
Have a [situation] where the price increases
So if you have Q and p
Let's do 10
That's our demand curve
we have a p of
5P star
Or equilibrium quantity is 5 we know what the area of that is but now let's increase
our
p
Star Star, we'll call it to 7
We also need to know what that new quantity is going to be so let's call it 3
if
we take the area of
This triangle base is going to be 3 height is going to be 3 we get the same values before
[4.5]
So again even if they were to [shift] that supply curve
to result in a new equilibrium
Price the way you calculate the difference in consumer Surplus is just calculate that track the area of the triangle
Before in the area of the triangle after so we know that the area of the triangle before was 12.5
area of the triangle after 4.5
gives us that 8
So whether it's demand shifting or supply shifting? All you're doing is calculating areas of triangles and
then
subtracting one from the other to get your difference in that consumer surplus
