The producer surplus is a microeconomic concept closely related to the consumer surplus and the concept of deadweight loss. The producer surplus is the difference between the market price and the cost of production.
As the demand curve shows how much of a product consumers are willing to buy at each price level, the supply curve shows how much of a product firms are willing to produce at each price level. Graphically, the producer surplus is represented by the area between the price and the supply curve.
Price ($)
| /Supply
| /
| /
| /
P|------/
| /
| /
| /
| /
| /
| /
|/
|_________________
Quantity
In the above graph (forgive it's awkwardness) the Y axis represents prices, the x axis is the quanity supplied, and the sloping line is the supply curve. The horizontal line represents the market price. The producer surplus is the area below the horizontal line, but above the sloping line. This area is the additional value gained by suppliers in the sale of their product (profit).
In a competitive market, the goal is to reach the equilbrium price where both consumer and producer surplus is maximized.