1.2.8 - Consumer & Producer Surplus

Question 1

Consumer Surplus

Answer 1

● The difference between the amount the consumer is willing to pay for a product and the price they have actually paid.

 - For example, if a 
   consumer is willing to 
   pay £18 to watch a 
   movie and the price is 
   £15, their consumer 
   surplus is £3.

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Question 2

Producer Surplus

Answer 2

● Producer surplus is the difference between the amount that the producer is willing to sell a product for and the price they actually do.

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  -  For example, if a 
     producer is willing to 
     sell a laptop for £450 
    and the price is £595, 
    their producer surplus 
    is £145

Question 3

How would an increase in supply affect consumer surplus.

Answer 3

Prior to the change in the condition of supply
Consumer surplus was equivalent to ACE.

After the change, supply increased S1→S2
Consumer surplus was equivalent to BED

Consumer surplus will increase.

Question 4

How would an increase in supply affect Producer surplus.

Answer 4

Prior to the change in the condition of producer surplus was equivalent to ACF

After the change, supply increased S1→S2 Producer surplus was equivalent to BDG.

Producer surplus will increase.

Question 5

How would an increase in demand affect consumer surplus.

Answer 5

Prior to the change in the condition of demand consumer surplus was equivalent to ACF.

After the change, demand increased D1→D2 consumer surplus was equivalent to BDG.

Consumer surplus will increase.

Question 6

How would an increase in demand affect producer surplus.

Answer 6

Prior to the change in the condition of demand
Producer surplus was equivalent to ACE.

After the change, demand increased D1→D2
Producer surplus was equivalent to BED.

Producer surplus will increase.