Micro: 1.2.8 Consumer and producer surplus

Question 1

What is consumer surplus?

Answer 1

Consumer surplus is the difference between the amount consumers are willing to pay and the price they actually pay.

Question 2

What is producer surplus?

Answer 2

Producer surplus is the difference between the amount producers are willing to sell a good for and the price they actually receive.

Question 3

How is consumer surplus illustrated on a diagram?

Answer 3

Consumer surplus is illustrated by the difference between the demand curve (the amount they are willing to pay) and the market equilibrium price (the amount they actually pay) – the darker shaded area on the diagram.

Question 4

How is producer surplus illustrated on a diagram?

Answer 4

Producer surplus is shown by the difference between the supply curve (the amount they are willing to sell for) and the market equilibrium price (the amount they sell for) – the lighter shaded area on the diagram.

Question 5

What should students consider regarding consumer and producer surplus?

Answer 5

Students should consider how changes in supply and demand will affect the size of the consumer and producer surplus, and identify the original, new, and change in both the consumer and producer surplus.

Question 6

Draw consumer surplus digram

Answer 6

Consumer surplus is illustrated by the difference between the demandcurve (the amount they are willing to pay) and the market equilibrium price(the amount they actually pay)– the darker shaded area on the diagram.Producer surplus isshown by the difference between the supply curve (theamount they are willing to sell for) and the market equilibrium price (theamount they sell for) – the lighter shaded area on the diagram