In this section, we will assume that the market is at equilibrium. This means that we are considering what happens when the quantity demanded is the same as the quantity supplied, while simultaneously the price paid is the same as the selling price.

In context, if is the demand curve and is the supply curve, then the point is the intersection of the curves and .

At the equilibrium price, there are consumers who would be willing to purchase some units at a price higher than . As such, consumers receive a benefit in the form of paying less than they otherwise might have. This benefit to the consumers is called the consumers’ surplus. The total benefit is given by the area over the interval and bounded by the demand curve and the line .

PIC

As the consumers’ surplus is the area between two curves, it corresponds to an integral. In particular:

PIC

There is a similar situation for producers. At the equilibrium price, the producer would be willing to sell some units at a price lower than . As such, the producer receives a benefit in the form of receiving more revenue that the might otherwise would have. This benefit to the producers is called the producers’ surplus. The total benefit is given by the area over the interval and bounded by the supply curve and the line .

PIC

As the producers’ surplus is the area between two curves, it corresponds to an integral. In particular:

PIC

A good way to remember which area corresponds to which surplus is that consumers demand and producers supply. This means that the area corresponding to the consumers’ surplus is the one bounded by the demand function and the area corresponding to the producers’ surplus is the one bounded by the supply function.