Total surplus is the sum of consumer and producer surplus. This calculation demonstrates the total profit to the economy from a producer to consumer exchange. Economists use this computation as a reference point to measure the consequences of government policies, such as taxation, on the market as well as a means to measure market efficiency. An efficient transaction is one in which total surplus is maximized. Though seemingly complex, total surplus is an easy computation that can be done in just a few steps.
Calculate consumer surplus. In economics, consumer surplus is the difference between what the consumer is disposed to pay for an item and the market price. To illustrate, if a consumer is willing to pay $50 for a chair and the local store is selling the chair for $30, the consumer surplus is $20.
Calculate producer surplus. Producer surplus is calculated using the same method as consumer surplus. Producer surplus is the gap between the lowest price a producer is willing to sell an item and the actual price for which the item is sold. For example, imagine the producer was willing to accept $20 for a chair. However, the chair is sold in the store for $30. The producer surplus is $10.
Add consumer surplus to producer surplus. This sum is the total surplus.
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