Consumer and Producer Surplus

Question 1

Define Producer Surplus

Answer 1

This is the difference between the price a firm receives and the price it would be willing to sell it at.Therefore it is the difference between the supply curve and the market price

If a firm would sell a good at £4, but the market price is £7, the produ

Question 2

How does elasticity of demand affect consumer surplus?

Answer 2

If demand is price inelastic, then there is a bigger gap between the price consumers are willing to pay and the price they actually pay.
If the demand curve is inelastic, consumer surplus is likely to be greater

Monopolies are able to reduce consumer surplus by setting higher prices

Question 3

Define consumer surplus

Answer 3

This is the difference between what the consumer pays and what he would have been willing to pay.

For example: If you would be willing to pay £50 for a ticket to see the

Question 4

How does free trade affect consumer and producer surplus

Answer 4

Free trade means a reduction in tariffs. It leads to lower prices for consumers and an increase in consumer surplus