12.4 : Producer Surplus: Graphical Explanation

Producer surplus is the difference between the amount that producers actually receive and the minimum amount at which they are willing to sell their product.

This surplus is visible on the graph showing the market supply curve. 

The market supply curve shows the minimum price that sellers are willing to accept for any given quantity. 

For example, consider a hypothetical market in which numerous sellers sell mangoes. The market supply curve shows the amount producers willingly supply to the market at various prices. 

Currently, the market price of mangoes is $3.5 per pound.

Producer surplus is the area of the triangle ABC, located above the supply curve and below the market price of mangoes, extending up to the quantity sold.

This triangular area represents producer surplus for any product and is bounded by the supply curve below, the market price above, and the quantity sold at the base.

The base of the triangle is the quantity of the product sold, while the height is the difference between the market price and the supply choke price.

The supply choke price is the price at which the quantity supplied equals zero.