1.5 consumer and producer surplus

Question 1

consumer surplus definition

Answer 1

the concept of marginal benefit and willingness to pay (represented by the demand curve); the difference between the marginal benefit from consumption and price paid

Question 2

producer surplus definition

Answer 2

the concept of marginal cost and the willingness to sell (represented by the supply curve); the difference between price received and marginal costs of producing the good

Question 3

social welfare calculation

Answer 3

consumer surplus + producer surplus (+government revenue)

Question 4

what causes welfare loss

Answer 4

a price that is not the equilibrium price (price too high/too low) causing the quantity sold to be lower than the equilibrium quantity

Question 5

another word for welfare loss

Answer 5

unrealized potential gain

Question 6

where is welfare maximizing

Answer 6

where consumer surplus and producer surplus are jointly maximized at the free market equilibrium (Qe)