Producer+Surplus+APMICE

__ Producer Surplus __

Producer Surplus is the difference between what price __producers__ are //**willing and able**// to supply a good for and **//what price they actually receive//** from consumers. It is the extra money, benefit, and/or utility producers get from selling a product at a price higher than equilibrium.

__ Price Elasticity of Supply and It's Effects on Producer Surplus __

Price Elasticity of Supply is the relationship of price and quantity changes. When supply is elastic, producers can increase production without much price or cost change. When supply is inelastic, producers can't change production easily.


 * __When supply is perfectly elastic__, it is depicted as a horizontal line. Producer surplus is zero because the price is not flexible. Producers can't provide a higher price than market price.
 * __When supply is perfectly inelastic__, it is depicted as a vertical line. Producer surplus is infinite because the price is completely flexible.



__ Calculating Producer Surplus __


 * //__The equation for calculating producer surplus for a specific quantity of a product__//**


 * Producer Surplus = (P e- P s1 ﻿)+(P e- P s2 )+(P e- P s3 )...


 * P s = Prepared Sale Price
 * P e = Equilibrium Price
 * Q ﻿e ﻿= Equilibrium Quantity

//__An example of how the equation works__//

Let's say the equilibrium market price for a product is $10. If a producer is prepared to sell the product at $5, $3, $8, and $1 to four customers respectively, the equation, with it's numeric substitution would look like this: (10-5)+(10-3)+(10-8)+(10-1). Solve the equation and the Producer Surplus turns out to be $23.


 * __//Total Producer Surplus//__**

The Total Producer Surplus is the part of the graph above that is shaded in and says "Producer Surplus". The area of that triangle is the equation for Total Producer Surplus.

//__The equation__//

Total Producer Surplus = 1/2(P s- P e ﻿)(Q ﻿e )

__ Changes in Producer Surplus __ __﻿__ //__Change in Supply__//

If Supply increases, for example due to technology improvements, Equilibrium Quantity increases and Equilibrium Price decreases. Producer Surplus increases. If Supply decreases, for example due to increasing input costs, Equilibrium Quantity decreases and Equilibrium Price increases. Producer Surplus decreases.



__//Change in Demand//__

If demand increases, for example due to an increase in average consumers' income, Equilibrium Quantity increases and Equilibrium Price increases. Producer Surplus increases. If demand decreases, for example due to a decrease in the price of a substitute good, Equilibrium Quantity decreases and Equilibrium Price decreases. Producer Surplus decreases.



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In this article, they compared [|Generic vs. Brand Named] products. Judy Dodd, a registered dietitian with Giant Eagle, reported that the generic brands are===== "... good food." and that "nutrition wise it's exactly the same." But when they compared prices, Dodd found that "for frozen vegetables... you’ll pay double for Green Giant compared to the generic brand." This article shows that the brand names are gaining producer surplus. Even though the products identical in quality, [|research] shows that people tend to lean towards brand names. So the we can say that the Prepared Sale Price is the Brand name product and the Equilibrium price is the Generic brand. If the values are plugged in the "Total Producer Surplus = 1/2(P s- P e ﻿)(Q ﻿e )" equation, we can see that there is a Total producer surplus. This is because there is a difference between what price producers are willing and able to supply and what price they actually receive from consumers.