consumer and producer surplus

Question 1

consumer surplus

Answer 1

the difference between the price the consumer is willing and able to pay and the price they actually pay.
this is based on what the consumer believes their private benefit will be from consuming the good

Question 2

where the area of consumer surplus is

Answer 2

the area above market price and below the demand curve

Question 3

inelastic demand and consumer surplus

Answer 3

inelastic demand curves give a larger consumer surplus. this is because consumers are willing and able to pay a much higher price to consume the good

Question 4

the law of diminishing marginal utility and consumer surplus

Answer 4

due to the law of diminishing marginal utility, consumer surplus generally declines with extra units consumed. this is because the extra unit generate less utility than the one already consumed. therefore, consumers are willing to pay less for extra units

Question 5

producer surplus

Answer 5

the difference between the price the producer is willing to charge and the price they actually charge.
in other words, it is the private benefit gained by the producer that covers their costs, and is measured by profit

Question 6

where the area of producer surplus is

Answer 6

the area below the market price and above the supply curve

Question 7

increasing consumer surplus

Answer 7

an increase in demand will increase consumer surplus

look in book for a better understanding

Question 8

decreasing consumer surplus

Answer 8

supply shifts to the left, which could be due to higher costs of production. this causes market prices to increase and consumer surplus decreases

Question 9

increasing producer surplus

Answer 9

this is caused by a shift in the supply curve from S1 to S2, which could be due to lower average production costs, for example. therefore, market price decreases and producer surplus increases