1.2.8 Consumer and Producer Surplus

Question 1

What is the marginal benefit curve?

Answer 1

Another name for the demand curve.

Question 2

Define total utility.

Answer 2

Total utility represents the satisfaction gained by a customer as a result of their overall consumption of a good.

Question 3

Define marginal utility.

Answer 3

Marginal utility represents the change in satisfaction resulting from the consumption of the next additional unit of a good.

Question 4

What is the law of diminishing marginal utility?

Answer 4

The law of diminishing marginal utility states that the satisfaction derived from the consumption of an additional unit of a good will decrease as more of a good is consumed.

Question 5

Define consumer surplus.

Answer 5

Consumer surplus is the difference between the price the consumer is willing to pay and te price which they actually pay (see by the price mechanism)

Question 5

Define producer surplus.

Answer 5

The difference between the price the supplier is willing to produce their product at and the price they actually produce at (set by the price mechanism)

Question 6

What does consumer surplus show?

Answer 6

Consumer surplus shows the welfare gained by consumers by buying the good.

Question 7

What does producer surplus show?

Answer 7

Producer surplus shows the economic gain for producers by selling the good

Question 8

Draw a producer and consumer surplus diagram.

Question 9

What does perfectly elastic and perfectly inelastic demand do to consumer surplus?

Answer 9

Perfectly elastic demand means that there is no consumer surplus

Perfectly inelastic demand means that there is infinite consumer surplus.

Question 10

What does perfectly elastic and perfectly inelastic demand do to producer surplus?

Answer 10

Perfectly elastic demand means that there is no producer surplus

Perfectly inelastic demand means that there is infinite producer surplus.

Question 11

What effect does increased demand/supply have on consumer and producer surplus?

Answer 11

Increased demand/supply will lead to an increase in consumer and producer surplus.

Question 12

What effect does decreased demand/supply have on consumer and producer surplus?

Answer 12

Decreased demand/supply will lead to a decrease in consumer and producer surplus.

Question 13

What is community surplus?

Answer 13

Community surplus is the total welfare to society.

Question 14

How do you calculate community surplus?

Answer 14

Consumer surplus + Producer surplus