What two components make up the total economic welfare in a market?

Total economic welfare in a market is represented by the sum of consumer surplus and producer surplus. Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and what they actually pay. This surplus reflects the benefit consumers receive from purchasing goods at a lower price than their maximum willingness to pay.

Producer surplus, on the other hand, is the difference between what producers are willing to accept for a good or service and the actual price they receive. This surplus indicates the extra benefit producers gain from selling at a market price higher than their minimum acceptable price.

Together, consumer surplus and producer surplus provide a comprehensive measure of the overall benefit that both consumers and producers derive from market transactions. This total economic welfare captures the efficiency of resource allocation in the market and the gains from trade between buyers and sellers.