2.4-Consumer and producer surplus Flashcards
What is consumer surplus?
The difference between what consumers are willing to pay for a good and what they actually pay.
What is producer surplus?
The difference between what producers are willing to accept for a good and the price they actually receive.
True or False: Consumer surplus increases when the price of a good decreases.
True
Fill in the blank: Consumer surplus is represented graphically as the area ______ the demand curve and ______ the market price.
above; below
What happens to producer surplus when there is an increase in market demand?
Producer surplus typically increases.
Multiple Choice: Which of the following best describes the equilibrium price?
The price at which quantity supplied equals quantity demanded.
What effect does a tax have on consumer and producer surplus?
A tax generally reduces both consumer and producer surplus.
True or False: A decrease in supply will lead to an increase in consumer surplus.
False
What is the relationship between consumer surplus and price elasticity of demand?
Greater price elasticity of demand usually leads to greater consumer surplus.
Fill in the blank: The area of producer surplus is located ______ the supply curve and ______ the market price.
below; above
Multiple Choice: Which scenario would likely increase consumer surplus?
A decrease in the price of a product.
What is deadweight loss?
The loss of economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved.
True or False: Consumer surplus is always greater than producer surplus in a competitive market.
False
What role does consumer surplus play in measuring economic welfare?
It indicates the benefit to consumers from participating in the market.
Fill in the blank: When market prices fall, consumer surplus ______ and producer surplus ______.
increases; decreases
Multiple Choice: Which of the following factors can decrease producer surplus?
An increase in production costs.
What is the formula for calculating total consumer surplus?
Total consumer surplus = 1/2 * base * height of the triangular area above the price.
True or False: Both consumer and producer surplus are maximized at equilibrium.
True
What happens to consumer surplus in a monopoly market compared to a competitive market?
Consumer surplus is typically lower in a monopoly market.
Fill in the blank: An increase in government subsidies for producers will likely ______ producer surplus.
increase
Multiple Choice: Which of the following would likely lead to a decrease in consumer surplus?
An increase in the price of the good.
What is the significance of the area between the supply and demand curves?
It represents total surplus in the market, which is the sum of consumer and producer surplus.
True or False: Consumer surplus can be negative.
False
What factors can shift the demand curve and affect consumer surplus?
Changes in consumer income, preferences, and prices of related goods.
