1.2.8 Consumer and Producer Surplus

Question 1

What is consumer surplus

Answer 1

is the difference between the maximum that the consumer is willing/able to pay for a good/service and the total amount they actually do

Question 2

How is consumer surplus represented on a demand/supply diagram

Answer 2

represented by the area underneath the demand curve and above market price

Question 3

What happens to consumer surplus when: demand for a good/service is perfectly elastic (PED=∞)

Answer 3

Consumer surplus is zero because the price people are will to pay, is the price they pay

Question 4

What happens to consumer surplus when: demand for a good/service is perfectly inelastic (PED=0)

Answer 4

consumer surplus is infinite quantity demanded does not respond to price change

Question 5

What happens to consumer surplus when demand is inelastic

Answer 5

Greater potential of consumer surplus because there are some buyer will to pay a higher price

Question 6

What is price discrimination

Answer 6

if a business can identify groups of consumers within their market who are willing and able to pay different prices for the same product - it is a way or turning consumer surplus into producer surplus

Question 7

Consumer surplus will rise or fall as what for a good/service changes

Answer 7

market price

Question 8

What is producer surplus

Answer 8

is the difference between the price producers are willing/ able to supply a product for and the price they get in the market

Question 9

Where is producer surplus shown on a demand curve

Answer 9

shown on the areas above the supply curve and below price Producer will generally charge a higher price due to profit motive

Question 10

What will cause producer surplus to change

Answer 10

a shift in the demand curve

Question 11

What is community surplus

Answer 11

is the sum of consumer and producer surplus

Question 12

How can community surplus relate to the variable importance’s of consumer and producer surpluses

Answer 12

the competition policy is designed to protect consumers from exploitation by producer this is a ‘value judgment’ to say that consumer surpluses more important than producer surplus

Question 13

If there is an outward shift in demand, what will happen to consumer/producer surplus

Answer 13

Consumer surplus: increase

Producer surplus: increases

Question 14

If there is Gov subsidy to producers

Answer 14

Consumer surplus: increase Producer surplus: increases

Question 15

If there is cost reducing innovation

Answer 15

Consumer surplus: increase Producer surplus: increases

Question 16

If there is a minimum price policy implicated by the gov

Answer 16

Consumer surplus: fall Producer surplus: uncertain

Question 17

If there is indirect tax on producers

Answer 17

Consumer surplus: fall Producer surplus: fall

Question 18

If there is an inward shift of market demand

Answer 18

Consumer surplus: fall Producer surplus: fall

Question 19

if there is a maximum price policy implicated by the gov

Answer 19

Consumer surplus: uncertain Producer surplus: fall