2.4 consumer and producer surplus

Question 1

what is consumers surplus?

Answer 1

the difference between the price the consumer is willing and able to pay and the price they actually pay. this is based on what the consumer perceives their private benefit will be from consumption.
this declines with extra units consumed due to diminishing marginal utility

Question 2

where is consumer surplus on a diagram?

Answer 2

above the market price and below the demand curve.

Question 3

what will inelastic demand mean for consumer surplus?

Answer 3

inelastic demand gives a larger consumer surplus as consumers are willing to pay a higher price to consume the good.

Question 4

what is producer surplus?

Answer 4

the difference between the price that the producer is willing to charge and what they actually charge. it is the private benefit gained by the producer that covers their costs, measured by profit.

Question 5

where is producer surplus on a diagram?

Answer 5

the area below market price and above the supply curve.

Question 6

what happens to consumer surplus as demand shits outwards?

Answer 6

increases

Question 7

what happens to consumer surplus as supply shits inwards?

Answer 7

decreases (higher prices)

Question 8

what happens to producer surplus as supply shifts outwards?

Answer 8

increases

Question 9

what happens to producer surplus as demand shifts out?

Answer 9

increases