Consumer surplus is the amount a buyer is willing to pay for a good minus the actual amount paid, representing the benefit to the consumer. Producer surplus is the actual amount received by a seller for a good minus the seller's initial cost, representing the seller's profit. Consumer surplus ideology suggests that if a consumer pays nothing at all for something they need, like a free beer on a hot day, their benefit is maximized because the money they were willing to spend remains with them.

1. MWANANGOMBE
AKAKANDELWA
004-112

2. GRAPHICAL CONCEPT OF
CONSUMER SURPLUS
•CONSUMER SURPLUS is how much a buyer is willing to pay for a good minus
how much he/she actually pays for the good.
• A good example is when someone has budgeted K2,000 for a laptop, but
then gets offered a good one at K1,000. The budgeted amount (K2,000)
minus the actual amount spent (K1,000) is equal to the CONSUMER SURPLUS
(K1,000).

3. GRAPHICAL CONCEPT OF
PRODUCER SURPLUS
•PRODUCER SURPLUS is how much a seller is paid minus the seller’s initial cost
price. This measures how much profit a seller makes during a trading
session.
• A good example is when someone is selling a laptop at K1,000 but is offered
K2,000 by a bidder (a customer offering an amount of money to beat other
customers’ offers). The initial selling price (K1,000) minus the actual amount
paid for the laptop (K2,000) is equal to the PRODUCER SURPLUS.

4. CONSUMER SURPLUS IDEOLOGY
• The CONSUMER SURPLUS as earlier stated, is the amount a buyer is
willing to pay for a good minus how much they actually pay for it. The
product or balance remaining, is therefore known as a benefit or
profit.
• If a parched man drinks a free cold beer on a hot day, he considers it
a bargain because he spends nothing at all to quench his thirst, which
maximizes his benefit or profit. The money he was willing to pay for
the cold beer remains intact and becomes his consumer surplus.

5. USE YOUR MODEL TO ANALYSE
THE EFFECT OF:
i. An increase in people seeking accommodation due to
increased migration:
- The demand curve shifts right, indicating in an increase in the
equilibrium price and an increase in the equilibrium quantity of
accommodation.
- People will build more houses to match the demand for
accommodation.
ii. The provision of a government subsidy to renters:
-The demand curve shifts right, indicating in an increase in the
equilibrium price and an increase in the equilibrium quantity of
accommodation.

6. iii. The granting of a government subsidy to the construction of
accommodation:
- The cost of building to producers reduces therefore causing an increase in
producer surplus.
- The supply curve shifts right, indicating in a decrease in the equilibrium
price and an increase in the equilibrium quantity of accommodation.
iv. An increase in the general level of interest rates in the economy:
- The supply curve shifts left (higher cost of investing for landlords) indicating
in an increase in the equilibrium price and a decrease in the equilibrium
quantity of accommodation.
- This increase in interest indicates that consumer surplus decreases because
consumers will spend more than they are willing to spend.
v. A government decision to increase the quantity of public housing
available:
- When the number of houses increases, the number of consumers also
increases.

7. vi. A change in tax legislation to allow deductibility against income for
owner occupiers:
- Producers would spend less money producing a good due to
reduction in tax. And less tax meaning an increase in production.
- The demand curve shifts, indicating a decrease in the equilibrium
price and a decrease in the equilibrium quantity of rental
accommodation.
vii. The imposition of a legislated maximum rent (‘rent control’):
- There will be no shifts in the curve.
- The prices for rent will be government controlled.
- Consumer surplus increases.
- Producer surplus decreases.

8. THE END