How is Total Surplus calculated?

Total surplus is calculated as the sum of consumer surplus and producer surplus. Consumer surplus represents the difference between what consumers are willing to pay for a good or service and what they actually pay. Producer surplus, on the other hand, reflects the difference between the price producers receive for their goods or services and the minimum price they would be willing to accept to produce them.

By combining these two surpluses, total surplus provides a measure of the overall economic welfare generated in a market. It reflects the efficiency of the market and indicates how much benefit consumers and producers receive from participating in it. This comprehensive view is essential in economics as it allows analysts to assess the impacts of market changes, policies, or events on society's well-being.