Total Producer Surplus

Definition

Total producer surplus refers to the overall benefit or profit that producers receive from selling their goods or services in a market. It is calculated by subtracting the total cost of production from the total revenue earned.

Analogy

Imagine you are selling homemade cookies at a bake sale. The total producer surplus would be the difference between the amount of money you make from selling all your cookies and the cost of ingredients and baking supplies.

Related terms

Marginal Cost: Marginal cost refers to the additional cost incurred by producing one more unit of a good or service.

Market Equilibrium: Market equilibrium occurs when the quantity demanded by consumers matches the quantity supplied by producers, resulting in an optimal balance between supply and demand.

Elasticity of Supply: Elasticity of supply measures how responsive producers are to changes in price. If supply is elastic, it means that producers can quickly adjust their output in response to price changes.