Analogously to the consumer surplus, the producer surplus can be
defined. In this case, the sellers’ benefit of participating in the market is
The producer surplus is based on the following concept. The supply curve reflects the costs (a more detailed description of the different types of costs will be given in the chapter "Theory of the firm") of the producers, which is the minimum value that the individual sellers attribute to the good. For all sellers who produce and sell a good, this minimum value (production costs) is lower than the price they receive for it, otherwise they would not offer the product. If the costs are higher than the income, a loss would result. The benefit a producer gets from selling one unit of the good is the difference between the costs and the price he gets for it.
For example, if it costs a carpenter €500 to produce a sofa and the price he gets for it is €600, the difference (€100) is the producer surplus. The producer surplus of an entire market is the sum of all individual producer surpluses.
Graphically, the producer surplus is represented by the area between the supply curve and the price line, since this area is the respective individual benefit (supply curve - price) multiplied by the quantity. Formally, this results in
where is the
equilibrium price and
the equilibrium quantity. The producer surplus is shown in color in the graphic
If the price rises from to , the producer surplus increases, as can be seen in the graphic above. This increase consists of two components. Firstly, the producer surplus of the existing producers increases, since their income rises due to the price increase. Secondly, the quantity sold increases from to (either through new producers or an expansion of the supply of the already active sellers) and this new yield also generates producer surplus.