1.2.8 - Consumer and producer surplus

Question 1

Define Consumer Surplus

Answer 1

. The difference between the price consumers are willing and able to pay for a good and the price they actually pay

. Consumer surplus is a measure of welfare that people gain from consuming goods and services

Question 2

Define Producer Surplus

Answer 2

. The difference between the price producers are willing and able to supply for a good or service and the price they actually receive.

Question 3

Define Society Surplus

Answer 3

. It is the SUM of consumer surplus and producers surplus.

. On a diagram, it is the combination of both triangles of consumer and producer surplus

Question 4

How does price elasticity of demand affect consumer surplus?

Answer 4

. When demand is inelastic, there is a greater consumer surplus, because buyers are willing to pay a very high price to continue consuming the good or service

• THINK!
• On a diagram if demand was inelastic, the demand curve would have a steeper gradient, meaning a large consumer surplus area
• On a diagram, if demand was elastic, the demand curve would not be as steep, meaning a slower consumer surplus area