2.5 Consumer and producer surplus

Question 1

What is a consumer surplus?

Answer 1

The difference between the maximum price a consumer is willing to pay for a good and the actual price they pay.

Question 2

What is a producer surplus?

Answer 2

The difference between the price a producer actually receives for a good and the minimum price they are willing to accept.

Question 3

If market price increases what happens to the level of the consumer surplus?

Answer 3

There is a lower level surplus

Question 4

If market price decreases what happens to the level of the producer surplus?

Answer 4

There is a higher level surplus

Question 5

If market price increases what happens to the level of the producer surplus?

Answer 5

There is a higher level surplus

Question 6

If market price decreases what happens to the level of the producer surplus?

Answer 6

There is a lower level surplus

Question 7

Where is the consumer surplus represented on a demand and supply diagram?

Answer 7

The area under the demand curve and above the price level, up to the quantity purchased.

Question 8

Where is the producer surplus represented on a demand and supply diagram?

Answer 8

The area above the supply curve and below the price level, up to the quantity sold.

Question 9

How do you calculate total tax revenue for the government?

Answer 9

Producer Incidence
+
Consumer Incidence

Question 10

What is a consumer/producer incidence?

Answer 10

The total burden as a result of the indirect tax :
- Who pays it
- How much they pay