Light

Producer Surplus

Definition

Producer surplus refers to the difference between what producers are willing to sell a good for and what they actually receive. It represents their economic gain from selling a product at a price higher than their minimum acceptable price.

Analogy

Imagine you have tickets to a popular concert and you're willing to sell them for $100 each. However, due to high demand, people are willing to pay up to $150 for those tickets. The producer surplus would be the extra $50 you earn from selling each ticket above your minimum acceptable price.

Related terms

Consumer Surplus: Consumer surplus is similar to producer surplus but from the perspective of buyers. It represents their economic gain from purchasing a product at a price lower than their maximum acceptable price.

Market Equilibrium: Market equilibrium occurs when supply and demand intersect, resulting in an optimal balance between quantity supplied and quantity demanded.

Elasticity: Elasticity measures how responsive consumers or producers are to changes in prices or income.