Use the formula for calculating the surplus, businesses can evaluate the effectiveness, the level of fairness of the economic policy. This article Accnet will help you discover details about the concept of surplus, the formula, practical examples. Through it, businesses will clearly see the importance of the calculation of the surplus in promoting the economic development sustainable, fair.
1. Surplus what is?
The surplus is the value remaining after deducting all costs in economics. This concept can be applied under many different shapes such as surplus consumer surplus producer surplus social.
Understand about surplus to help businesses evaluate the effectiveness of the economic activity, the impact of the policy to the consumer/manufacturer.
2. Formula for calculating consumer surplus
2.1. Consumer surplus is what?
Consumer surplus, or also known as Consumer Surplus is the difference between the amount of money that consumers are willing to pay for a product/service and the amount they actually pay. This reflects the benefits that consumers get when buying goods at a price lower than the value that they evaluate.
Surplus consumer is an important indicator to assess the level of satisfaction of consumers with respect to prices of goods/services. Help the business/policy makers better understand the satisfaction of the customers, put off the business decisions accordingly.
2.2. How to calculate consumer surplus
Surplus consumer is calculated according to the following formula:
| Surplus consumer = ½ x (amount consumed) x (Price willing to pay - market Price) |
Suppose a consumer is willing to pay 100,000 for a product, but in fact only have to pay 80,000, they purchased 10 units of that product. Surplus the consumer will be:
Surplus consumer = ½ x 10 x (100,000 x 80,000) = 100,000 dong
3. Formula for calculating producer surplus
3.1. Definition surplus produced what is?
Surplus production, or also called Producer Surplus is the difference between the amount that producers receive from the sale of goods and the cost of producing that commodity. It is the benefit that producers get when selling price higher than the cost of production.
Surplus production reviews business performance and profitability of the business. In the financial analysis, the surplus production help managers understand more about the production efficiency, profitability, to decisions business/investment more accurate.
3.2. Formula for calculating producer surplus
Surplus production is calculated according to the following formula:
| Producer surplus = ½ x (quantity sold) x (market Price - Cost of production) |
If a manufacturer, the production cost is 50,000 vnd sale price on market is 80,000 vnd for each unit of goods, with 10 units of goods are sold, the surplus manufacturer will be:
Producer surplus = ½ x 10 x (80,000 -50,000) = 150,000 vnd
4. Formula for calculating the surplus social
4.1. Surplus what is social?
The surplus society, or also called Social Surplus is the sum of the surplus and consumer surplus manufacturer. This is the total benefit that society receives from the production/consumption of goods/services.
Surplus social reviews the efficiency, fairness of the economic policy. It helps the policy makers better understand the impact of the interventions, economic to optimize social benefits.
When there is a project, infrastructure, new, surplus society is used to measure the overall benefit of the project for the community.
4.2. Formula for calculating the surplus social
Surplus social is calculated by the formula:
| The surplus society = consumer surplus + producer surplus |
If the surplus of consumers is 100,000 and a surplus manufacturer is 150,000 vnd, the surplus society will be:
The surplus society = 100,000 + 150,000 = 250,000 vnd
5. The factors that affect the formula for calculating the consumer surplus/producer/social
5.1. Factor supply/demand
When demand increases, supply does not change, the price will increase, leading to a surplus of consumers lose surplus manufacturer increases.
Conversely, when the supply increases, demand does not change, the price will be reduced, leading to a surplus of consumers increase, the surplus manufacturer reduced. This reflects the relationship is inverted between supply/demand to surplus.
5.2. Tax policies affect consumer surplus/producer/social
When the tax is applied, the retail price increases, while wholesale price reduced, leading to a reduction in the amount of goods consumed/produced. The result is a surplus consumer surplus producer are reduced, reducing the total surplus of society.
For example, when government pressure to excise tax with respect to the products harmful to health such as tobacco, surplus overall of the society may be reduced due to reduction in consumption/production.
5.3. Policy support price affecting factors surplus
When subsidies are applied, retail prices fell in when the wholesale price increases, which leads to increase the amount of goods consumed/produced. At this time, the surplus consumers ' surplus producers all increased, which increases the total surplus of society.
For example, when the government support price for agricultural products, both consumer/farmers are benefiting from lower prices, higher income.
6. The reference
Below is a list of documents/books & reference was used in the article on the formula for calculating the surplus:
- Krugman, P., & Wells, R. (2018). Economics. Worth Publishers
- Mankiw, N. G. (2020). Principles of Economics. Cengage Learning
- Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W. W. Norton & Company
- Pindyck, R. S., & Rubinfeld, D. L. (2017). Microeconomics. Pearson
- Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic Theory. Oxford University Press
- Besanko, D., & Braeutigam, R. (2010). Microeconomics. Wiley
- Lipsey, R. G., & Chrystal, K. A. (2015). Economics. Oxford University Press
- Stiglitz, J. E., & Walsh, C. E. (2006). Economics. W. W. Norton & Company
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The article has introduced, explained in detail the concept of surplus, consumer surplus, producer surplus, social, along with the formula for calculating the surplus common. Accurate calculation of surplus of helping decision makers/business can optimize the benefits of the economic activity.
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