Consumer and Producer Surplus

Question 1

Community surplus

Answer 1

Community surplus is the sum of consumer and producer surplus at a given market price and output. Community surplus is maximised in competitive markets at an equilibrium output when price = marginal cost.

Question 2

Consumer surplus

Answer 2

A measure of the welfare that people gain from consuming goods and services, or a measure of the benefits they derive from the exchange of goods. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total they pay (the market price).

Question 3

Producer surplus

Answer 3

The difference between what producers are willing and able to supply a good for and the price they actually receive. The level of producer surplus is shown by the area above the supply curve and below the current market price.