consumer and producer surplus chapter 11 Flashcards
consumer surplus
the difference between the price a consumer is willing to pay for a product and its market price
how does a price fall affect demand
more will be demanded since the product now appeals to more consumers.
how does a rise in price affect demand
a fall in the quantity demanded since the price increase is greater than the satisfaction of some of the consumers.
what affects price of a product
Those who receive most satisfaction will be willing to pay a higher price than those receiving very little satisfaction. For most products, the price is given; firms are unable to charge a higher or lower price whatever the customer’s level of satisfaction.
the impact of a price change on consumer surplus
the extent of price change-the larger the change in price, the greater will be the change in consumer surplus
the price elasticity of demand-When demand is price inelastic, an increase in price will see less of a fall in consumer surplus than if demand is price elastic.
producer surplus
the difference between the price a producer is willing to accept and what is actually paid. producers are keen to supply consumers who are willing to pay a price above that which they would normally be prepared to accept. the additional revenue is producer surplus
impact of a price change on producer surplus depends on
The extent of the price change-The greater the price change, up or down, the greater will be the change in producer surplus.
The price elasticity of supply.-When supply is elastic, an increase in price will see a much greater increase in producer surplus than if supply is inelastic because there are producers already in the market willing to supply at a lower price; the increase in price adds to their consumer surplus.
net benefit
the sum of consumer surplus and producer surplus represents the net benefit to society of this market’s operations.
