consumer and producer surplus

Question 1

define consumer surplus

Answer 1

difference between market price and what consumers would be willing to pay.

Question 2

what explains a consumers willingless to pay for a good

Answer 2

maximum price he/she is willing to pay

Question 3

define the total consumer surplus

Answer 3

• entire shaded area of a graph

Question 4

where does consumer surplus lie?

Answer 4

• beneath the demand curve and above price

Question 5

define producer surplus

Answer 5

difference between the market price and price firms are willing to supply a product.

Question 6

where does producer surplus lie on a curve?

Answer 6

• area above the supply curve but below that price

Question 7

define total surplus

Answer 7

sum of the producer and consumer surplus

Question 8

why is CS low when PED is high

Answer 8

limited opp for the seller to raise price as there are many close substitutes available

Question 9

why is CS high when PED is low

Answer 9

low number of substitutes available

Question 10

describe ways competitive markets are usually efficient

Answer 10

• allocate consumption to buyers who most value it.
• allocate sales to potential sellers who most value selling the good.
• ensure transactions are mutually beneficial.

Question 11

why are well-functioning markets effective

Answer 11

1. property rights
2. economic signals

Question 12

why does private property matter?

Answer 12

create and protect incentives to trade with other, innovate.

Question 13

why do good economic signals matter

Answer 13

• profits increase in industries when consumers want more of that industrys products.
• ## profits decreases in industries when consumers want less of industrys products.