Figure 5-6 Economic Surplus in the Pizza Market
Economic Surplus and Market
Allocative Efficiency
Once the demand and supply curves are put together, the equilibrium
price and quantity can be determined, just as in Chapter 3. This brings
us to the important concept of economic surplus. We continue with our
pizza example in Figure 5-6 , which shows the demand and supply
curves together. Consider a quantity of 100 pizzas. For each one of those
100 pizzas, the value to consumers is given by the height of the demand
curve. The additional cost to firms from producing each of these 100
pizzas is shown by the height of the supply curve. For the entire 100
pizzas, the difference between the value to consumers and the additional
costs to firms is called economic surplus and is shown by the shaded area
① in the figure.