Consumer and Producer Surplus

Question 1

Diminishing marginal utility

Answer 1

As you consume more of a good, the marginal utility from each extra unit will decrease.

E.g. as you eat more cupcakes, the marginal benefit of the next cupcake goes down each time as you become less hungry

Question 2

Marginal utility

Answer 2

The additional benefit received from consuming an extra unit of a good.

Question 3

Consumer surplus

Answer 3

The difference between what consumers are willing to pay and what they actually pay.

Question 4

Producer surplus

Answer 4

The difference between what producers are willing to sell for and what they actually sell for.

Question 5

why demand curves are typically downward sloping?

Answer 5

Yes, marginal utility decreases (or diminishes) as quantity increases.

Question 6

Indirect tax

Answer 6

A tax on goods and services.

Question 7

Specific tax

Answer 7

A fixed amount of tax paid on each unit sold

Question 8

Ad valorem tax

Answer 8

A tax charged as a % of the price of a good e.g. VAT