🔎 Basic Recipes for CS, PS, TS and GS

For an individual person, their CS is the difference between the value that they get from a good and the price that they pay for it:

$$CS = \text{value of good} - \text{price of good}$$

For a group of people, add up the CS for each person who purchases the good.

For a very large number of people, you can approximate the CS by calculating the following area:

• Above the Price Line
• Below the Demand Curve ← the value/reservation price
• To the Left of the last unit consumed

Producer surplus

PS is a lot like profit (it ignores fixed costs)
For an individual sale of a good, the PS is the difference between the revenue from the sale (price received) and the cost of producing the good:

$$PS = \text{Price} - \text{Marginal Cost}$$

For total Producer Surplus, just add up the PS from all items sold.

For a very large number of sales, you can approximate the PS by calculating the following area:

• Below the Price Line   ← their revenue
• Above the Supply Curve ← their marginal cost
• To the Left of the last unit produced ← only units that are actually produced matter.

Total surplus = Social Surplus

TS is just $CS + PS$. Because CS and PS both have the price line as one of their edges, there is a shortcut.

For a very large number of sales, you can approximate the TS by calculating the following area:

• Below the Demand Curve   ← CS
• Above the Supply Curve ← PS
• To the Left of the last unit produced ← only units that are actually produced matter.