Example 2: The whole idea behind economic surplus is the following:

A consumer gains when they purchase something for LESS than they are willing to pay,

A producer gains when they sell something for MORE than they are willing to charge.

The consumer surplus is the total benefit added up across all the consumers and the producer surplus is the total benefit added up across all the producers.

Consider the supply and demand functions: () = 400 ² , () = 10 + 25

(a) Sketch the graph (or get a computer to do it for you!) and locate the equilibrium point. You should be able to do the algebra by hand but its fine to consult a machine for help!

(b) Label the regions of the graph corresponding to the producer surplus and the consumer surplus.

(c) Calculate the producer surplus exactly!

(d) Estimate the consumer surplus 5 right end point rectangles!