In your own words, explain the meaning of total surplus in a economy.

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Expert Solution

Total surplus = Consumer surplus + Producers surplus.

Total surplus is addition of consumer surplus and producer surplus. It is maximum at the point of equlibrium(where demand and supply intersect).

In the above pic upper shaded region(A) which is ∆PCE is consumer surplus and lower shaded region (B) which is ∆DCE is producer surplus and all the shaded region is total surplus which is ∆PDE ( ∆PCE + ∆DCE).

If government imposes any tax then total surplus decreases and result in occurrence of deadweight loss.

At maximum total surplus which is the case in above pic both consumer and producer is gaining.

Rahul Sunny answered 1 year ago

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