Chapter 7

In chapter 7, we learn about a pretty straightforward concept in the idea of surpluses. A surplus is the willingness to buy or sell, minus the actual price. In class, we used an example of Air Jordan shoes. If someone is willing to purchase the shoes at a price of $190, but the shoes only end up costing $150, the consumer has a consumer surplus of $40. Similarly, if a supplier is willing to supply the shoes at a price of $130, but they are able to charge a price of $150, the producer will have a producer surplus of $20. Surplus can be helpful because it can ultimately decide which side is better off. Normally, whichever side, consumers or producers, has a higher surplus will end up with a greater benefit. In the case of a tax or government intervention, producers and consumers will see a decrease in their overall surplus. As we learned in chapter 6, a tax levied on either the buyers or the sellers will increase the price to buyers as well as the cost to sellers. So if the price and cost rise, sellers will receive less and buyers will pay more, therefore their surplus will decrease.