1.2.8

Question 1

What’s consumer surplus?

Answer 1

The difference between the price of a product and the price consumers actually pay.

Question 2

What’s producer surplus?

Answer 2

The difference between the price producers are willing to supply a good at and the price they actually receive for it.

Question 3

How do you show consumer surplus on a diagram?

Answer 3

Draw this.

S&D diagram.

Consumer surplus is shaded above the supply curve but between thr default P1 and Q1 equilibrium.

Question 4

How do you show producer surplus on a diagram?

Answer 4

Draw this.

S&D diagram.
Below default P1 and Q1 equilibrium.

Question 5

What happens to consumer and producer surplus when demand shifts inwards?

Answer 5

Consumer surplus gets bigger and producer surplus gets smaller.

Question 6

What happens to consumer and producer surplus when supply shifts inwards?

Answer 6

Producer surplus gets bigger and consumer surplus gets smaller.