1.2 - Consumer and producer surplus

Question 1

Consumer surplus

Answer 1

• The extra amount of money consumers are willing to pay, above what they actually pay
  > extra satisfaction gained

Question 2

Producer surplus

Answer 2

The extra amount of money that producers are paid, above what they were willing to take
> selling at higher price than prepared to

Question 3

When the market is at equilibrium…

Answer 3

consumer and producer surplus are maximised

Question 4

Social surplus

Answer 4

Consumer surplus + Producer surplus

Question 5

What does disequilibrium do to social surplus

Answer 5

Reduces it

Question 6

How does an increase in supply affect consumer and producer surplus?

Answer 6

• Both consumer and producer surplus increase
  > Increase in output sold (PS) and decrease in prices (CS)

Question 7

How does an increase in demand affect consumer and producer surplus

Answer 7

• Both consumer and producer surplus decrease
  > Output sold decreases and price increases