3) Consumer and Producer Surplus - MMT

Question 1

Consumer and Producer Surplus:

what is consumer surplus?

Answer 1

is the extra amount a consumer is willing to pay for a product above the price they actually do pay (i.e. the market price)

Question 2

Consumer and Producer Surplus:

• the lower the price the… the consumer surplus
• if the market price of a product increases, consumer surplus will…

Answer 2

• greater

- fall

Question 3

Consumer and Producer Surplus:

what is producer surplus?

Answer 3

is the difference between what producers are willing and able to supply a good for and the price they actually receive

Question 4

Consumer and Producer Surplus:

• the higher the price the… the producer surplus
• if the market price of a product falls the size of the producer surplus…

Answer 4

• greater

- decreases

Question 5

Consumer and Producer Surplus:

what is market- based pricing?

Answer 5

i.e. set prices according to what individual consumers are willing to pay

Question 6

Consumer and Producer Surplus:

how is consumer surplus the basis of modern pricing strategies?

Answer 6

e.g. higher price of holidays during July and August

Question 7

Consumer and Producer Surplus:

higher producer surplus should lead to… profits

Answer 7

higher

Question 8

Consumer and Producer Surplus:

how does the government benefit from the idea of consumer and producer surplus?

Answer 8

used by governments in judging whether increases in indirect taxes are actually going to beneficial to the country - i.e. will overall surplus increase or decrease