5 Steps to a 5 AP Macroeconomics 2019

70 ❯ Step 4. Review the Knowledge You Need to Score High

$5, three units of the good are produced. The first two units earn producer surplus because

$5 is above the marginal cost. The third unit earns no additional producer surplus, since

the marginal cost is exactly equal to the price received. Total producer surplus is the total

amount earned by these three producer transactions.

Quantity

Price $

5.00

D 1

1 2 3

CS1 CS2 CS3

Figure 6.14

Quantity

Price $

5.00

S 1

1 2 3

PS1

PS3

PS2

Figure 6.15

Quantity

Price $

5.00

S 1

1 2 3

PS

CS

4

MB>MC MC>MB

D 1

Figure 6.16

•    The    area    under   the demand  curve   and above   the market  price   is   equal  to   total  consumer    

TIP surplus.

TIP

•    The    area    above   the supply  curve   and below   the market  price   is   equal  to   total  producer    

surplus.