Consumer And Producer Surplus

Question 1

Consumer surplus

Answer 1

Difference between the price of what consumers pay and the price they would be willing to pay

Question 2

Producer surplus

Answer 2

Difference between the amount producers are willing to sell their good and the price they actually sell it for

Question 3

What happens to both when price increases

Answer 3

Producer surplus increases
Consumer surplus decreases

VICE VERSA

Question 4

Effects of greater producer surplus

Answer 4

Efficient allocation of resources as producers are willing to enter the market

Innovation

Market stability

ALTHOUGH

monopoly pricing - if prolonged

Barriers to entry - if prolonged

Question 5

Effects of lower producer surplus

Answer 5

Low market price- harm ability to innovate

Inefficient production

Reduced supply- allocative innificency in the market

Question 6

Impact of high consumer surplus

Answer 6

Economic efficiency as consumers benefitting from high competition

Increased utility

Question 7

Impacts of low consumer surplus

Answer 7

Inequality shown- less choice

Monopoly structure- low competition