A2.01.12: Consumer, Producer and Society Surplus

Question 1

Define Consumer Surplus

Answer 1

Difference between the amount that a consumer’s willing to pay and the price that they actually have to pay
- The greater the difference, the lower amount they have to pay meaning they will have higher disposable incomes to spend elsewhere

Question 2

Define producer surplus

Answer 2

Difference between the price at which a producer is willing to sell a product and the price they actually receive in the market
- The greater the difference, a higher price is set meaning they will have greater profits received

Question 3

Define Social Society Surplus

Answer 3

The sum of consumer and producer surplus at a given price and quantity in a free market

Question 4

What does it mean when social society surplus is maximised

Answer 4

An optimum allocation of scarce resources has been achieved