Monday, January 19, 2015

Consumer and Producer Surplus: A Slideshow-Tutorial

Consumer and producer surplus are useful concepts for explaining many points of microeconomic theory and policy. Applications include gains from trade in both domestic and international markets, the incidence and excess burden of a tax, and the deadweight loss from externalities.

Unfortunately, producer and consumer surplus are not always explained well in introductory micro textbooks. One problem (this applies to my own text as much as to others) is that there is only room in a conventional textbook for a limited number of graphs. A slideshow format works better because you can explain the concepts step by step, building your graphs piece by piece as you go along.

I wrote a slideshow-tutorial on consumer and producer surplus several years ago when I was teaching an MBA economics course in Zagreb, but I never posted it anywhere for easy public access. Earlier today, while I was working on my post and slideshow on the soda tax, I realized it would be useful to make the consumer and producer surplus tutorial available as a backgrounder, so here it is.

Follow this link to view or download a classroom-ready slideshow-tutorial on consumer and producer surplus


  1. My take away from your excellent presentation: The big fear is that the controllers of currency have no idea what to do when deflation takes hold. Their main tool - interest rate manipulation - is off the table. Their other tools - QE et al - are experimental and likely to have unanticipated consequences.

    One question. If interest rates rise as deflation increases, why are people buying Swiss bonds at negative interest rates today?

    1. I'm not sure exactly who is buying the Swiss bonds, but I can imagine at least two motives for buying them at negative nominal yields. One is that if the rate of deflation is faster than the negative nominal yield on the bond, then the real yield is positive. The other reason is that they expect the Swiss franc to continue to appreciate vs. their home currency at a rate that is faster than the negative nominal rate on the bonds.