Consumer Surplus,producer Surplus and Price Control

Question 1

Consumer surplus

Answer 1

What a consumer is willing to pay for one unit of a commodity measures the money value of its expected utility and what he actually pays measures the monetary cost of the expected utility
The difference is the consumer surplus

Question 2

Consumer surplus mathematically

Answer 2

Consumer surplus = monetary value -monetary cost

Question 3

Price control

Answer 3

During inflation government can control rising prices by passing maximum price legislation
This will involve fixing maximum price below the equilibrium price

Question 4

Price ceiling
Pricing
Price floor

Answer 4

Price ceiling is the maximum amount a seller is allowed to charge for a product or service
Pricing is the process whereby a business sets the price at which it will sell its products
Price floor is a government imposed price control or limit on how low a price can be charged for a product

Question 5

Effects of price ceiling

Answer 5

• the equilibrium price will no longer be obtainable because of the excess of both demand and supply
• the goods may be sold to regular and favored consumers
• it may lead to the formation of black market

Question 6

Formulae for consumer and producer surplus

Answer 6

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