hey everybody so welcome back now we're going to talk about producer surplus so when we talked about consumer surplus we started with the demand curve and we said the demand curve was showing us consumers willingness to pay for a good or service or in other words at every point along the demand curve it told us that at that given price how many people were willing to pay that much for the good the supply curve does the same thing but it tells us the side of the producer the supply curve tells us each uh the the producer's willingness to sell a good or a service at any given price so again let's talk about the tablet market what we had with consumer service we said that if there was a consumer who was willing to pay 400 for a tablet and they only had to pay say 250 of the tablet that means they must have gotten that 150 of consumer surplus it's the same idea consider a selling seller who's willing to sell the tablet for a hundred dollars okay so maybe that's the cost it was to produce the tablet okay so if you have this tablet and any in to you it's worth a hundred dollars if someone's willing to pay me more than a hundred dollars i will sell it to them then someone is willing to pay is comes and says i'm going to pay 250 dollars for this thing that i think is worth 100 bucks i'm excited i'm elated as a producer because i am giving away something that's worth to me 100 and receiving 250 okay so we're going to talk a lot in firm theater later in this course about how where the supply curve come from comes from and how this really measures profit but for now we're going to stick to this idea of producer surplus so if my willingness to sell a good is a hundred dollars and i actually sell it for 250 then that extra happiness that extra bonus that extra welfare for me is that 150 which we're going to call producer surplus so consumer surplus was the difference between the willingness to pay for a good and the price actually paid the difference between a producer's willingness to sell the supply curve and the price actually sold is the producer surplus so graphically that's the difference between the supply curve and the price actually paid so here's my picture of producer surplus so i didn't because i spent the time um building this up in the demand in the consumer surplus side i didn't build it up in these slides but you can see the same idea that person who's willing to sell the the tablet for a hundred bucks this is their producer surplus if there's someone out there who's willing to sell it for 200 this is their producer surplus if there's someone who's out there willing to sell it for 50 bucks this is their producer surplus and we just add all these together again what we're going to learn in firm theory really is where the supply curve comes from and what we're going to see is it's not about different sellers willing to sell things at different prices it's about your willingness to sell different units the more units you sell the different the price is going to change we're going to learn a lot about that later on this course but for now that's all you need to know is graphically the difference between the supply curve and the actual price received for the good is going to be the producer surplus okay so i'm going to take both those and put them on the same graph and we're going to call this economic surplus okay so economic surplus is the sum of producer and consumer surplus remember and let's not let's let's not lose sight of what we're doing here is the whole point here was to measure efficiency in a market and consumer surplus and producer surplus are the tools we're going to use okay so here's how i want you to interpret these things consumer surplus is the overall well-being or happiness of consumers in a market okay so this is the tablet market the fact that there is a tablet market and consumers have the ability to go and buy tablets how happy that makes consumers as a whole is measured by the size of that consumer surplus triangle okay so now we have a graphical depiction of how happy consumers are we also have a graphical depiction about how happy producers are and that's producer surplus okay so in our market we have these two actors the consumers and the producers so we look at economic surpluses whole we overall see how happy this market makes people and remember the whole story of efficiency it's about maximizing the pie maximizing welfare maximizing happiness in the market and so that's what we want to see we want to see economic surplus maximize okay so graphically this is the biggest this is the maximum this is the efficient market okay and the way i know that is think about how these two things are measured the difference between the demand curve and the price is consumer surplus the difference between the supply curve and the price is producer surplus so the fact that every square inch between the supply and the demand curve is factored into surplus either economic or producer or consumer so it's factor in economic surplus tells me that this is the the most efficient this is maximized there's no surplus left okay that might be a little bit hard to understand so what we're going to do is in the next video we're going to look at the efficiency of a market with a price control okay we're going to look at what happens when there's a price ceiling and what that's going to show you is that economic surplus goes down okay and so sometimes i think it's easier to see a market that's inefficient to help us realize why this one is efficient okay so rather than me go on and explain and tell you different ways to think about why we would consider this graph we're looking at as efficient we're going to look at the inefficient version and then we're going to be have the opportunity to compare them okay so um that's it i know this is a short one but now we're going to get back with inefficiencies of price controls