Consumer/Producer Surplus

Question 1

Define consumer surplus

Answer 1

The difference between the highest price a consumer is willing to pay for a good or service and the actual price they pay.

Question 2

Define producer surplus

Answer 2

The difference between the price a producer is willing to accept for a good or service and the actual price they receive.

Question 3

How does an increase and decrease in demand affect consumer and producer surplus

Answer 3

Increase:
-decrease CS
-Increase PS
Due to an increase in the equilibrium price

Decrease:
-increase CS
-decrease PS
Due to a decrease in the equilibrium price

Question 4

How does an increase and decrease in supply affect consumer and producer surplus

Answer 4

Increase:
-increase CS
-decrease PS
Due to a decrease in the equilibrium price

Decrease:
-decrease CS
-increase PS
Due to an increase in the equilibrium price