Consumer and Producer Surplus

Question 0

Define producer surplus.

Answer 0

Producer surplus measures the welfare producers get from their production. It is the difference between what producers are willing and able to sell their product for and the actual price they receive.

Question 1

Define consumer surplus.

Answer 1

Consumer surplus measures the welfare that a consumer gets from their consumption. It is the difference between what consumers are willing to pay for a good and what they actually pay.

Question 2

Draw a diagram that shows consumer surplus.

Answer 2

See picture.

Question 3

Draw a diagram that shows producer surplus.

Answer 3

See picture.