<p>Consumer surplus (CS) is the area under the demand function and above equilibrium price, and Producer surplus (PS) is the area under price and above the supply function on conventional graph that has quantity on <span class="math-container">$x$</span> axis and price on <span class="math-container">$y$</span> axis.</p>
<p>Technically, although we omit that in speech, the CS and PS are actually areas under (above) <em>inverse</em>  demand (supply) function and above (below) equilibrium price.</p>
<p>You are shaded areas under demand and above supply intersected by equilibrium quantity. Those are <strong>not</strong> CS and PS respectively. On your picture CS and PS is located under the orange line and above zero and right of equilibrium price (assuming <span class="math-container">$p, q\geq 0$</span>), and the PS is the area under the blue line above zero and right of equilibrium price.</p>
<p>I shaded those areas for you. Green is PS and blue is CS. To calculate the are of these two, since you are using linear demand and supply functions you can use formula for triangle (<span class="math-container">$A=1/2BH$</span>), the base of triangle for PS is the difference between equilibrium and minimum price for producers to produce anything <span class="math-container">$B=p^*-p_{min}$</span> and  height is the equilibrium quantity <span class="math-container">$H=q^*$</span>. For CS height is again <span class="math-container">$q^*$</span> and base is difference between maximum price at which demand is just equal to zero and equilibrium price <span class="math-container">$B=p_{max}-p^*$</span>.</p>
<p><a href="https://i.sstatic.net/vzczDQo7.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/vzczDQo7.jpg" alt="enter image description here" /></a></p>

CC BY-SA 4.0
2024-10-11T11:25:22.157Z
2024-10-11T11:25:22.157Z
1muflon1
<p>I want to calculate the producer surplus, should I do it from y = 0 to the equilibrium point, or from the intersection of the supply function with the y-axis to the equilibrium point, the following image shows the first option (the green polygon would be the producer surplus taking into account the first option), what is the correct way to do it?</p>
<p><a href="https://i.sstatic.net/bwxnT1Ur.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/bwxnT1Ur.png" alt="enter image description here" /></a></p>

CC BY-SA 4.0
2024-10-11T06:45:50.060Z
First of all, it is unlikely that the curve ys(py) is correct. It should most likely be max(0,ys(py)) so negative values of y changed to 0. Second, is 'py' the price and if so why are you breaking economic convention of drawing the price on the second axis? This is relevant if you want to apply the standard graphical approach for calculation of CS and PS.
Jesper Hybel
<microeconomics>
Calculating producer surplus when the supply function cuts the y-axis at a negative value (there is a cut-off point) in microeconomics
Lemon Squeezy
# Calculating producer surplus when the supply function cuts the y-axis at a negative value (there is a cut-off point) in microeconomics

(Asked by: username_0 on 2024-10-11)

I want to calculate the producer surplus, should I do it from y = 0 to the equilibrium point, or from the intersection of the supply function with the y-axis to the equilibrium point, the following image shows the first option (the green polygon would be the producer surplus taking into account the first option), what is the correct way to do it?

[![enter image description here](https://i.sstatic.net/bwxnT1Ur.png)](https://i.sstatic.net/bwxnT1Ur.png)

**Tags:** microeconomics

> **Comments:**
> **username_1**: First of all, it is unlikely that the curve ys(py) is correct. It should most likely be max(0,ys(py)) so negative values of y changed to 0. Second, is 'py' the price and if so why are you breaking economic convention of drawing the price on the second axis? This is relevant if you want to apply the standard graphical approach for calculation of CS and PS.  

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## 1 answers

### Answer by username_2 on 2024-10-11. Score: 1 | Accepted answer

Consumer surplus (CS) is the area under the demand function and above equilibrium price, and Producer surplus (PS) is the area under price and above the supply function on conventional graph that has quantity on $x$ axis and price on $y$ axis.

Technically, although we omit that in speech, the CS and PS are actually areas under (above) *inverse* demand (supply) function and above (below) equilibrium price.

You are shaded areas under demand and above supply intersected by equilibrium quantity. Those are **not** CS and PS respectively. On your picture CS and PS is located under the orange line and above zero and right of equilibrium price (assuming $p, q\geq 0$), and the PS is the area under the blue line above zero and right of equilibrium price.

I shaded those areas for you. Green is PS and blue is CS. To calculate the are of these two, since you are using linear demand and supply functions you can use formula for triangle ($A=1/2BH$), the base of triangle for PS is the difference between equilibrium and minimum price for producers to produce anything $B=p^\*-p\_{min}$ and height is the equilibrium quantity $H=q^\*$. For CS height is again $q^\*$ and base is difference between maximum price at which demand is just equal to zero and equilibrium price $B=p\_{max}-p^\*$.

[![enter image description here](https://i.sstatic.net/vzczDQo7.jpg)](https://i.sstatic.net/vzczDQo7.jpg)


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