What is total surplus? How is it illustrated on a demand and supply diagram?

Total surplus is the sum of both consumer surplus and producer surplus. It represents the total welfare benefit that both consumers and producers receive from participating in the market. Consumer surplus is the difference between the highest price a consumer is willing to pay and the actual price they pay for a good, while producer surplus is the difference between the actual price a producer receives for a good and the lowest price they are willing to accept.

To illustrate total surplus on a demand and supply diagram, follow these steps: 1. Draw the demand curve: This curve typically slopes downward from left to right, representing the relationship between the price of a good and the quantity that consumers are willing to buy. 2. Draw the supply curve: This curve usually slopes upward from left to right, representing the relationship between the price of a good and the quantity that producers are willing to offer for sale. 3. Identify the equilibrium point: This is the point where the demand and supply curves intersect, determining the equilibrium price and quantity in the market. 4. Show Consumer Surplus: On the diagram, locate the area between the demand curve and the equilibrium price line, extending from the vertical axis to the equilibrium point. This is the area that represents consumer surplus. 5. Show Producer Surplus: On the diagram, locate the area between the supply curve and the equilibrium price line, extending from the vertical axis to the equilibrium point. This area represents producer surplus. 6. Total Surplus: The sum of consumer surplus and producer surplus is represented by the entire area between the demand and supply curves up to the equilibrium point. Here's a summary of the diagram components: - Demand curve: downward sloping line - Supply curve: upward sloping line - Equilibrium point: intersection of demand and supply curves - Consumer surplus: area between demand curve and equilibrium price line - Producer surplus: area between supply curve and equilibrium price line - Total surplus: combined area of consumer and producer surplus, between demand and supply curves up to the equilibrium point. By illustrating total surplus on a demand and supply diagram, one can visualize the welfare benefits both consumers and producers receive from participating in the market.