A Brief Study On Consumer And Producer Surplus

Consumer Surplus- When a consumer has a definite price in his mind,but when he buys the product he actually buys it less than what he expected is known as consumer surplus.


Producer Surplus- When a producer wants to sell a product on a certain price but due to market demand the consumer is willing to buy the product on a higher price,this difference of the customer willing to buy the product and the amount in which the producer wanted to sell is known as producer surplus.

For example:Suppose Shyam went to buy a product to a certain producer,and the producer asks for a price of Rs.10000,but after bargaining he gets ready to sell the product for a amount of Rs.7000. So,here the consumer gets an amount of Rs.3000 as consumer surplus. And the price which the producer made the product or expecting at least Rs.5000 for the product but he actually got an amount of Rs.7000. This difference of Rs.2000 is the producers surplus. 

CONCEPT'S TO KNOW BEFORE YOU BARGAIN

 How many times have you faced a situation where you tried to bargain with a shopkeeper for a product and finally you were successful in bringing the quoted price down considerably or how many times have you come across a situation when you tried to do the same, but were not able to do it and finally gave up, cause the shopkeeper just would not lower the price after a certain amount.

It happens quite often isn’t it?

The terms associated with these instances are called as ‘CONSUMER SURPLUS’ and ‘PRODUCER SURPLUS’ respectively.

CONSUMER SURPLUS

We shall first see what consumer surplus is with the help of an example,

Suppose you are on a shopping spree and you land up at a store where you see the dress that you were madly searching around for hour’s , and when you spoke to the shopkeeper regarding the price , he quoted you ₹1200.Now after looking at the material and other factor’s you were willing to pay just ₹900 for it. Anything more than that would be a clear no .Accordingly you bring your bargaining skills into play and start at ₹600, even though you know that you can go up to ₹900. Finally after several minutes of justifications on your respective prices, the deal closes at ₹750.In this case the difference of the amount you were willing to pay (₹900) and the amount you actually paid (₹750) , that is ₹150 is the consumer surplus.

The amount OF MONEY THAT a buyer is willing to Part off for a good or service minus the amount the buyer actually pays to acquire that good.

Now that we know what consumer surplus is, can it happen to the producers too?

Well it is very much possible , this phenomenon is called as ‘PRODUCER’S SURPLUS’. Let us understand with an example.

PRODUCER SURPLUS

Producer’s surplus comes from the point of view of the seller. Suppose you are the owner of a hardware store. People approach you regularly for various tools. One such a person had come to buy a hammer. You quoted him a price of ₹ 450. The cost that you had paid to purchase it was ₹300. Therefore if a customer bargains for a price that is more than ₹ 300 , you will be willing to sell or you will not come below the cost price at all.

At this point after a long discussion the customer agrees to purchase the hammer at ₹ 400.This excess amount of ₹ 100 over the cost price of ₹ 300 is what is known as the “PRODUCER’S SURPLUS”.

THE AMOUNT which A SELLER IS PAID FOR A GOOD or service excluding THE SELLER’S COST OF PROVIDING IT or the cost price.

These two concepts are needed to be understood by both the customer as well as the seller in order to make the most out of the respective  situations they are in.