Consumer and Producer surplus

Question 1

What is consumer surplus?

Answer 1

It is the difference between how much consumers are willing to pay and what they actually pay for a product.

Question 2

What is producer surplus?

Answer 2

It is the difference between the price producers receive and the cost of supply. In other words it represents profit.

Question 3

Where is the consumer surplus?

Answer 3

In the area under the demand curve and above the market price.

Question 4

Where is the producer surplus?

Answer 4

In the area between the supply curve and the market price.

Question 5

What factors affect consumer surplus?

Answer 5

The gradient of the demand curve: the steeper, the greater the CS

Changes in the conditions of demand: an increase in demand will increase CS

Question 6

What factors affect producer surplus?

Answer 6

The gradient of the supply curve: the steeper, the greater the PS

Changes in the conditions of supply: an increase in supply will increase PS