Must consumers surplus equal producer surplus at equilibrium price?explain answer?

Question

Must consumers surplus equal producer surplus at equilibrium price?explain answer?

Answer 1

The short and correct answer is No, consumers surplus need not necessarily be equal to producers surplus at equlibrium price. Most cases, these will not be equal.

Let's cite a counter example where consumer surplus is positive but producers surplus is zero. Take the case of long term equlibrium under perfect competetion. Producers operate under constant marginal costs and are at the point where their marginal cost is the lowest average total costs and that equals the price which equals. So producers surplus is zerothe marginal revenue.So producers surplus is zero. But consumers have diminishing marginal utility operating and therefore enjoys a surplus on the units purchased except the lst unit each purchases where marginal utility is equal to price.

But better for you to draw simple diagrams of straight line demand supply curves on a graph paper and you can see that producers and consumer surplus can be unequal.

Answer 2

No - it's not necessarily true. Producer surplus is area above supply curve and above equilibrium price line but consumer surplus is area below demand curve and above equilibrium price line. so all depends on demand and supply curves - simplest case is then they are linear and in more complex case you will need to use integration to find surpluses and compare them.

But in most cases surpluses are not equal.

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