5.12 Consumer And Producer Surplus Flashcards
how do you measure consumer surplus?
maximum price a consumer is willing and able to pay-the price they end up paying
in the graph what is total consumer surplus?
the triangle p1,E,A
what increases whenever consumer surplus increases?
consumer welfare
what reduces consumer surplus and consumer welfare?
high prices
how do you measure producer surplus?(and producer welfare)
price charged-minimum price the firm is willing to charge
in the graph what area represnts producer surplus?
triangle p1,A,F
consumer surplus def
measure of the economic welfare enjoyed by consumers: surplus utility is received over and above the price paid for a good.
producer surplus def?
a measure of the economic welfare enjoyed by firms or producer: the dif between the price a firm succeeds in charging and the minimum price it would be willing to accept
when consumer surplus falls, producer surplus..
increases
Consumer and producer surplus in a monopoly diagram
What is the loss of consumer and producer surplus called?
Deadweight loss
In this diagram where is industry output in perfect competition? And output in a monopoly?
Point A for perfect competition
Point B for monopoly
-monopoly restricts output from Q1 to Q2 and prices prices from P1 to P2
Deadweight loss def?
Loss of economic welfare when the maximum attainable levels of total welfare fails to be achieved
When happens when a monopoly raises prices?
Increase of producer surplus at expense of consumer surplus
What is deadweight loss evidence of?
Marker failure
Where is the deadweight loss in this diagram?
Both the shaded triangles
In price discrimination who benefits and who suffers?
Firm benefits
Consumer suffers
Diagram to illustrate price discrimination and the transfer of consumer surplus
Diagram for a combined market after price discrimination?
Describe this diagram
(Of the combined marker after price discrimination)
The average revenue curves of male and female are added together
The marginal curves of male and female have also been added together
For the combined market the marginal cost slopes upwards depicting the impact of the law of diminishing returns
Diagram for price discrimination (the limiting case where each customer is charged the maximum they are willing to pay)
What is 3rd degree price discrimination?
Where discriminating firms divide the market into a number of different market segments
What is first degree price discrimination known as?
‘Perfect’ price discrimination or the limiting case of price discrimination
What is second degree price discrimination??
Occurs when the price charged varies according to quantity demanded(think bulk buying)
What does this diagram highlight?
A situation where all the consumer surplus is transferred to producer surplus (every customer charged the max they are willing to pay)
In the absence of price discrimination where should the firm produce?
Q1 where MC=MR
Describe how this diagram depicts how the poorest customers can benefit from price discrimination
Each time the firm sells to one more customer total sales revenue rises by the extra units sold multiplied by the price the customer pays(customers are changed different prices to different customers)
-the absence of price discrimination the firms AR curve continues to be the demand curve and the MR curve is below the ar curve
However with price discrimination the demand curve if the same as the MR curve
