For any quantity of pizzas, the area below the demand curve and above
the supply curve shows the economic surplus generated by the
production and consumption of those pizzas. The demand curve shows
the value consumers place on each additional pizza; the supply curve
shows the additional cost associated with producing each pizza. For
example, consumers value the 100th pizza at $20, whereas the additional
cost to firms of producing that 100th pizza is $5. The economic surplus
generated by producing and consuming this 100th pizza is therefore
For any range of quantity, the shaded area between the
curves over that range shows the economic surplus generated by
producing and consuming those pizzas.
Economic surplus in the pizza market is maximized—and thus market
efficiency is achieved—at the free-market equilibrium quantity of 250
pizzas and price of $12.50. At this point, total economic surplus is the
sum of the three shaded areas.
For any given quantity of a product, the area below the demand curve and above the supply
curve shows the economic surplus associated with the production and consumption of that
product.$ 15 ($ 20 −$ 5 ).